The Modern Spend Management Process

It would be much simpler if businesses could read a single book or article and immediately understand which cost cutting measures they need to take first. But because every business has its own structure, form, and purpose, spend management needs to be carefully customised based on a deep understanding of how the business works. 

Businesses eager to leverage the power of technology to drive insights into their spending can partner with the provider of their selected spend management platform to create a solution that works best for them. This provider will walk the organisation through three main steps—identifying the source of costs, determining the validity of the company’s current expenditures, and analysing the data to glean learnings.

Understanding the source of costs

The first step a business must take when reining in finances is identifying its different sources of expenditure. This can be done by a team of managers or the C-suite with an automated platform or tool. It should be carried out in a methodical, comprehensive way—rather than piecemeal—to ensure that duplicate costs and redundancies are correctly identified across departments.

Business expenditures come in many forms, and depend on the nature of the business:

• Resource procurement and transportation costs
• Procurement vs. purchasing expenses
• Calculating return on investment (ROI) for each vendor
• Risk assessment and management, business forecasting and continuity planning
• Employee salaries, benefits, and business travel costs
• Office and warehouse rental
• Utilities
• Licenses and insurance
• Employee training 
• Advertising and marketing
• Research and development costs

To efficiently track expenses and the success of their cost saving measures, companies need to develop a comprehensive, granular spending categorisation system, invest in a tech stack that can properly manage spend, and develop processes that safeguard data accuracy and completion.

Determining the validity of expenses

Employee-submitted claims help the organisation understand how much money is being spent, but unfortunately, not all submitted information is correct. Traditionally, employees will spend their money, record the information, file a claim, and wait for a period of time for reimbursement. This system can be easily abused; employees might claim that personal expenses were for business, overstate charges, or fail to disclose savings from discounts and promotions. 

Modern spend management allows businesses to authorise approved amounts of spend, down to individual employees. Rather than authorising and approving spend after the money has already been spent (and getting tangled into disputes with indignant employees) and demanding that employees manually fill out expense reports, managers can enforce specific allowances which have been calculated based on prior company spend. 

Automated expense management software does not mean that the data is always correct upon first input. After data is tracked, businesses will need to clean the data, then classify it to highlight recurring patterns and spending anomalies. Accounting teams will have to review the data to identify and correct duplicates, recording errors, spelling mistakes caused by Optical Character Recognition (OCR), and missing gaps in information.

Analysing financial data

In the past, financial data analysis was done by a team of accountants, and the tools at their disposal tended to be limited to spreadsheets and binders of papers. In 2021, however, accountants could tap on the power of artificial intelligence (AI) and machine learning (ML) algorithms. They can feed data to the algorithm, which can then highlight specific patterns and trends; certain platforms can then turn the information into reports, graphs, and charts.

The computing power of machine learning algorithms makes it much easier for accountants to manage the business’ data. Just like spreadsheets help businesses organise countless records, algorithms help analysts process countless numbers and letters into something much more useful.

This makes it much easier for businesses to analyse, interpret, and then showcase the resulting trends in a meaningful way to improve their business decisions. 

Most businesses now employ a combination of humans and machines to make sense of their data. Machines help to pinpoint patterns and anomalies that would be difficult for the human eye to catch. Analysts then apply their uniquely human creativity and expertise to the information to answer the question, “So what?”

Spend management is a lifesaving business activity

Spend management can help organisations analyse the costs and benefits of their different expenditures and shape strategies for the future. Rather than basing budgets simply on last year’s spending data, managers can use spend management data to build a budget that’s suited for the business’ purposes. 

For example, an operational manager might look at the data and realise that it’s more affordable to bring a specific business function in-house than it is to outsource. A human resources manager might be able to develop a fairer, more economically sound compensation structure that fairly rewards all employees. 

Spend management helps each department track its impact—how dollars spent translate to return and value. Ultimately, spend management—done correctly—helps businesses reduce procurement costs, monitor and refine workflows, become more compliant, improve efficiency, and save time.

Check out our self-guided demo for a quick overview on how the modern spend management process works.

For more on our #BusinessSpendManagement series, click here.