Budgeting: With (and For) Spend Management

It's that time of year again. CFOs and controllers are taking out the pen, slashing and burning budgets they don't like, and praising and tossing additional funds at those they do. Well, at least metaphorically speaking (we all know it’s not that easy). But regardless of whether your organization is in a spending or cost cutting mode, it can certainly benefit from using Spend Management tools, processes, and approaches in the budgeting process.

We know of a handful of organizations using Spend Management tools to directly budget more effectively. But what are some examples?

Some organizations have used spend visibility and analysis tools to gain a better view into what they're purchasing and have prioritized categories based on this information for competitive negotiation and sourcing. They then have estimated savings levels based on market benchmarks and have been able to more effectively guide budgeting decisions based on forecast savings levels. Other organizations are using procurement, catalog, and contract management applications to better monitor and enforce spending levels and policies, often for indirect materials and services (e.g., office supplies and temporary labor), which enables better costing and planning before the spending actually takes place.

These two approaches tend to help finance organizations indirectly -- but proactively -- plan and monitor their budgeting efforts. But Spend Management organizations can also empower CFOs directly by providing them an integrated, current view into historical and current purchasing and supplier activity. By creating a CFO dashboard that tracks historical purchasing activity and shows realized and estimated savings results, Spend Management professionals can empower CFOs with information they never had available at their fingertips before. Making information more active can help drive a "continuous planning and budgeting approach," as American Express has realized.

But ultimately, besides helping to save their organization money and plan more effectively, what's in it for procurement professionals? Potentially more budget to go after additional Spend Management opportunities. But budgeting for Spend Management is an entirely other question.

I was cruising Ariba's Spend Management learning center and found a whitepaper that I wrote back from my FreeMarkets days on how to go about budgeting for sourcing initiatives, which is just as relevant now in the context of budgeting for broader Spend Management programs. I admit that it's a boring read for non-financial and accounting types, but it really does break-down the ways organizations can plan for Spend Management investments (in both technology and services). You can read the whitepaper here (registration required).

-Jason Busch

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