As organizations balance growth agendas with mindful spending, many finance leaders are focusing more on spend management as a way to achieve both goals.
We recently interviewed Robert Kugel, senior vice president and research director at Ventana Research, a business and technology research firm, to learn his views on developing an effective spend management strategy.
“Spend management is a growing strategic priority within the CFO’s agenda, and is essential for driving profitable and sustainable growth,” said Kugel.
But finding the time to be more strategic about spend management can be challenging. Finance teams are often consumed with the tactical day-to-day work of managing heavy transaction volumes, leaving little time for analysis and advising the business on how to better manage spend.
According to Kugel, these frustrations are leading many finance leaders to look at new systems that are leveraging technologies such as analytics, mobile, and in-memory processing for help.
Kugel highlighted several ways that technology is helping companies better manage spend: Simplifying expense management, better management of indirect spend, and reducing administrative burden.
Employee expenses are often the biggest surprise at the end of a quarter—consider that an average of 20 percent of employee expenses fall outside of company policy. According to the Global Business Travel Association’s BTI Outlook – Annual Global Report & Forecast, global business travel is expected to reach $1.6 trillion by 2020, increasing the pressure to find effective ways of managing these costs.
“Spend management is a growing strategic priority within the CFO’s agenda, and is essential for driving profitable and sustainable growth.”
For many fast growing companies, the first step is to automate manual processes and graduate to a streamlined solution. Yet not just any expense management software will do. Kugel suggests that expense management shouldn’t be viewed as simply a way to record employee expense reports, manage the approval process, and process requests for reimbursement.
“Organizations need to also have visibility into spend and a friendly consumer interface that employees will embrace using,” he said.
First, it’s important to make expense reporting easy for employees, which keeps them engaged in the process and helps companies track expenses soon after they’re made.
“Mobile capabilities are enabling employees to process reports on-the-go using their smartphone cameras, which automatically attach receipts to electronic expense reports,” said Kugel. “By streamlining the process, employees can get reimbursed sooner for out-of-pocket expenses.”
City Year, an education-focused nonprofit organization that partners with public schools to help keep students in school and on track to graduate, saw a huge improvement in expense reimbursement after streamlining their expense management in Workday, and was able to reimburse employees for expenses 88 percent faster.
It’s also a huge advantage to have expense management, financial management, and human capital management in a single system, with all applications working seamlessly together and all related data in one place. Kugel explained how having one system provides deeper insight into expenses and makes it easier to ensure employee compliance.
“Data captured by the expense system is immediately reflected in the accounting system, providing finance with clearer and timelier visibility into these expenses,” said Kugel. “Having this insight makes it easier for finance to analyze spending trends, and executives and managers to track outlays and have better control over costs.”
Expense management and HR in the same system, can also help with employee compliance, said Kugel. “All aspects of an employee’s record are ‘known’ by the system and are kept up-to-date, which means that role-dependent travel and expense policies are always applied properly.”
Indirect spend—the procurement of goods and services that don’t go into the creation of a product, such as furniture, computers, and office supplies—can have a big impact on the bottom line.
Kugel pointed out the benefits of moving beyond manual processes to a modern, technology-based approach to procurement. “Automating these processes cuts the time employees spend in specifying and requisitioning, reducing the hassles associated with paper-based systems,” he said.
Having a single, comprehensive system for managing procurement can make it easier for employees to comply with company policies and reduce duplicate or wasteful spending.
Shelter Insurance achieved a 5 percent reduction in out-of-policy spend worth $650,000 per year after unifying financial management and procurement in Workday.
“Centralizing indirect procurement in one system can substantially reduce maverick spending and achieve cost savings by concentrating purchases across preferred vendors, especially if a company has negotiated volume discounts,” he said.
And, like expenses, it’s also valuable to have financials and HR living alongside procurement in one system, as it provides finance with more accurate and timely data about indirect spend and makes it easier to enforce role-based spending authority limits.
As an example, Shelter Insurance achieved a 5 percent reduction in out-of-policy spend worth $650,000 per year after unifying financial management and procurement in Workday.
For government, education, and non-profit organizations that must segregate funds for specific purposes, a system should offer the ability to automatically check that there are funds available before approving purchases, added Kugel.
Modern systems that leverage analytics, mobile, and in-memory data in a cloud model make it possible to incorporate expense management, procurement, financial management, and HR in one system, with visibility into all of these related functions. And there are cost and time benefits, too.