How to boost confidence and agility with Budget to Pay

In 2021, CFOs face a healthy dose of uncertainty. A once-in-a-lifetime pandemic continues to make planning difficult and risky, so there is financial pressure to build more precise accuracy and accountability all the way down through the budgeting process.

Analysis on the full shape of economic recovery offers little guidance, compounding these everyday spend management challenges. It is time for CFOs to build in deeper visibility into budgeted costs to help set and monitor the right control measures.

But which costs should be more visible?

All of them — including indirect costs managed by procurement. Since digital cost transformation is a big part of the CFO agenda, GEP has partnered with multiple Fortune 500 clients to innovate the existing cost management framework, especially in the SG&A space where control and accountability are dispersed across so many different pockets of the organization. Legacy systems and siloed operations, however, don’t help the cause.

Typical budgeting approaches — including ZBB, or zero-based budgeting, and a variety of other cost reduction initiatives — have been the norm for years. However, maverick, non-compliant spending continues to be a big obstacle to delivering value and leads to savings leakage.

A fully compliant purchase means buying from the correct supplier, at the right price and with adequate volume. To drive spending through compliant channels, mature organizations use rigorous procure-to-pay solutions to address the price and supplier aspects of compliance. It works well.

But where you don’t see a fully evolved solution is in the demand control space.

What can you do?

Try a holistic, closed-loop demand compliance approach to budgeting — what we call Budget to Pay.

Organizations have made some strides in demand compliance. Many have done these three steps really well:

• They understand their costs in granular detail.
• They set intelligent targets through benchmarks.
• They establish control towers to monitor performance.

However, current solutions fall short because they don’t allow organizations to check demand in real-time before the spend is committed. They need to be able to bring the same level of rigor to demand control from end to end — from when they budget until they pay. While CPOs may not have the mandate to challenge demand, they can do this in partnership with budget controllers in finance.

Go deeper. See why Spend Matters believes this approach is the first to really address the “first mile” of the spend management process.

So, how can CFOs drive better demand compliance?

In most organizations, the budgeting culture provides autonomy to leadership teams, seeks to avoid micro-management and allows leaders to make investment decisions based on expected business outcomes. While this approach should continue, the governance model and management emphasis should change. Here’s how:

• The process should be data-driven, looking beyond simple financial data to provide an end-to-end view of the value that investments generate.

Organizations should speak the same language and enforce the same financial control guidelines from budget to pay.

• Data should be available in real time. Waiting for books to close at month’s end is too late for intervention. Use a reporting system framework that will be the transient system of record for costs until books close — bringing financial data, accruals/PO commitments, procurement data and business data (sitting in SaaS platforms) — together in real time with the same control principles, will allow for surgical intervention.

Think of this as being a prerequisite for demand control — similar to managing contracts, quotes and category cards for price.

• The quarterly/monthly governance procedure should receive the same scrutiny as the annual budgeting process.

Using available and accurate data eliminates excuses.

• Interventions should be surgical rather than being broad “stop spending” mandates.

Build in more frequent accountability without needing to cut off strategic initiatives.

Enterprises should — and can — rapidly adapt their current practices toward value-based, data-driven budgeting. CFOs can apply the same rigor in their capital budgeting processes toward regular opex cost analysis. Align and provide CFOs with a reporting layer that offers curated, real-time insights to aid day-to-day decision-making.

What GEP’s Budget to Pay offers

Find the accuracy, accountability and discipline needed in your spend management and budgeting. Here’s how enterprises will benefit:

• Dramatically improve how to identify and track cost-reduction programs in real time
• Reduce maverick spend due to price, supplier and volume
• Eliminate the need for reporting separate cost-reduction numbers from CPOs and CFOs
• Precisely measure procurement’s ROI by linking cost reduction delivered through strategic procurement activities to budget line items in financial planning
• Avoid blanket “cost bans” to improve cash without damaging earnings

Learn more. Read this detailed “Make the Case” analysis from Pierre Mitchell of Spend Matters.

Ashwin Kumar, GEP’s Vice President of Consulting (above), has a strong track record of delivering strategic cost reduction programs for global Fortune 100 clients across CPG, manufacturing, and retail. He has led several digital procurement and supply transformation programs that involved massive change management challenges and global supply chain complexities, while working closely with finance teams to deliver more than a billion dollars in sustainable EBITDA improvements across multi-year engagements.

He specializes in “budget-to-pay,” supply chain optimization, inventory management, organization design and the deployment of digital best practices for supply management. Ashwin brings a wealth of insights into the cultural element of change management thanks to his experience working across several geographies, from North America to Europe to the Asia Pacific.

Before joining GEP, Ashwin worked with Frost & Sullivan in the chemicals sector and is a chemical engineer by qualification. He also holds an MBA from the Indian School of Business (ISB), where he specialized in Finance.