Control Company Costs
Financial Insights: The Power of Spend Analysis
With increasing pressure to exert tighter cost controls and manage expenses more efficiently in light of economic uncertainty and inflationary pricing, finance leaders are looking for new strategies to manage expenses in the most efficient manner.
A recent SAP Concur study showed that 90% of global senior finance leaders said there is a critical need to prepare their businesses for the unexpected. One fundamental strategy is to deploy a robust and consistent spend analysis process as part of your financial strategy.
What Is Spend Analysis?
Spend analysis requires collecting, categorizing, and analyzing spending data. By examining spend data in terms of policies and goals, finance teams and travel managers can look for cost-saving opportunities. Spend analysis can also help uncover patterns that impact efficiency and answer questions such as:
- Where is the organization spending its money?
- Who are the key suppliers and vendors?
- Are there any unnecessary or excessive spending areas?
- Are there opportunities to renegotiate supplier contracts or consolidate spending?
- How do current spending patterns align with the organization's overall financial objectives and T&E strategies?
The Benefits of Spend Analysis
Spend analysis provides several key benefits, helping businesses refine their financial management and T&E programs.
Cost Savings
By identifying areas of unnecessary spending, businesses can implement cost-cutting measures. For example, consolidating spending with suppliers can lead to volume discounts. Getting employees to use preferred suppliers with negotiated contract pricing can lower costs.
Informed Negotiations and Supplier Relationships
Segmenting expenses provides data into supplier relationships, including spend patterns, service levels, and performance. These data points can be used in negotiations and strengthening supplier relationship management (SRM) practices.
Travel and Expense Optimization
Robust travel and expense programs require special attention. By analyzing travel-related expenses, spend analysis often uncovers anomalies and noncompliant spending. For example, employees may opt to spend at non-preferred suppliers, costing companies more than negotiated contracts would produce.
Improved Visibility and Compliance
Transparency and visibility into spend data are crucial. The spend analysis process produces greater visibility by turning data into actionable insights. This can help you ensure alignment with company objectives and remain compliant with internal expense policies.
Benchmarking
Regular spend analysis allows you to benchmark performance with other companies and evaluate the impact of policy or procedure changes.
How to do Spend Analysis
Spend analysis requires a methodical approach to get meaningful results. However, many companies struggle with how to create spend reports. Here are the key steps to get your finance team started and build a strong foundation for spending analysis.
Define Your Objectives
You need to establish clear goals for your spend analysis. This might include identifying cost-saving opportunities, analyzing supplier relationships, or aligning spending with your organization's strategic objectives.
Having well-defined goals will guide the data-gathering and analysis process. Just as importantly, you need to make sure your goals align with the way you need to operate.
You can learn more about this by downloading our eBook, Does Your Business Spending Match the Realities of Business?
Identify Data Sources
Spend insights are only as valuable as the data.
You will want to review your data sources within your organization, including procurement records, expense reports, and accounts payable (A/P) systems. Comprehensive data is crucial to get a holistic view of your spending patterns.
Centralize the Data
Once you are comfortable that you have identified all of your data sources, you will want to centralize spending data in a central database. You will also need to standardize the data formats so you can make fair comparisons and uncover patterns.
For example, credit card spending analysis may require pulling data from your credit card suppliers into your system and standardizing the data to conform to your naming and segmenting policies.
Cleanse and Normalize the Data
As part of this process, you should review the data to identify and eliminate any errors and ensure the integrity of your data.
Enhance Data Visibility
Technology plays a key role in linking data to suppliers and expenses. The best spend analysis tools will leverage this data to provide an accurate representation of your overall spending and actively find areas where strategic supplier management can yield savings.
Categorize Spending
Spend analysis also requires a comprehensive taxonomy for spending. You can use your own classifications or industry systems such as the United Nations Standard Products and Services Code (UNSPSC) or ECLASS.
Analyze and Monitor
Establish key performance indicators to track and evaluate your spending patterns over time. This might include tracking metrics like:
- Percentage of spending with preferred suppliers
- The ratio of direct to indirect spending
- Supplier contract compliance
- Noncompliant or maverick spending
- Cost-reduction measure improvements
Act on Findings
After you have completed your spend analysis, you will want to take action. You may find areas that need intervention to improve spending. Often, you find patterns that indicate problems with a particular department, group, or individual. This allows you to isolate and prioritize trouble spots and create strategies to improve processes.
Best Practices for Conducting Spend Analysis
Leveraging best practices for spend analysis can make your process even more efficient. Here are a few strategies that can make a significant difference.
Clear Travel and Expense Policies
Making sure you have clear policies for spending helps improve compliance and gives you a way to analyze expenses against these policies. This is a key step that is often overlooked, leading to maverick spending and unnecessary costs. You may also uncover areas where policies need to be adjusted to rein in spending.
Automating Spend Analysis
Manually gathering and analyzing spend data is time-consuming and often creates errors.
Using spend analysis tools to automate this process is key to streamlining your spend management process. Integrated systems can pull data from various sources and consolidate it, enhancing speed, reliability, and accuracy. The right reports and dashboards can help you see where your spend is going and create insights to make better decisions.
Automation and spend analysis tools can also put guardrails on spending, identify noncompliance or potential fraud, and streamline processing.
Looking for more tips on how to automate spend management? Read “The Busy Person’s Guide to Spend Management Automation.”
Aligning Spend Analysis With Objectives
Effective spend analysis helps make sure expenses align with company goals. By understanding how spend patterns support these objectives, you can better prioritize your initiatives and allocate resources effectively.
Cross-Functional Collaboration
Data analysis benefits greatly from collaborating with different departments. A collaborative approach will take into account the needs of different stakeholders and lead to greater compliance with any policy changes.
Training and Education
The data you analyze often uncovers patterns where unnecessary spending or non-compliant spending can be reined in with better training and education for employees. Ensuring employees understand the rules and policies — and the logic behind them — you can create stronger adherence.
Continuous Improvement
Treat spend analysis as an ongoing process and not just a one-time exercise.
Regular data analysis can identify new ways to continually enhance your financial management and travel program strategy.
Control Costs and Automate Expense Management
SAP Concur solutions help you control costs and automate expense, invoice, and budget management. An integrated, automated, and intelligent travel and expense management solution can help businesses of any size to optimize productivity and efficiency — resulting in measurable cost savings. You can view our short video, Spend Solutions for Businesses Big or Small, to see how SAP Concur solutions can help your business.