Spend Control is the term given to all the processes that an organisation uses to manage aspects of expenditure that are non-payroll related. It includes all forms of procurement and employee expenses.
A man once owned a goose that laid eggs made of gold. Every day, the man took a golden egg from the goose’s nest, sold it at the market, and used the money to buy things that he needed for the day. Then one day the man got tired of waiting patiently for each golden egg to be laid. He wanted all his treasure at once, so he killed the goose, thinking that inside her he would find solid gold. Sadly after cutting open the goose, all he was left with was a dead goose and no more golden eggs.
The morale of this story for us is that you can easily save money in the short term by taking short cuts to manage expenditure, but you will not succeed in building a business for the future.
Setting the Scene
When it comes to expenditure, most company Directors still occupy a reactive management role. They have no real means to tighten the corporate belt during tough times or even to avert financial disaster before it occurs.
Yet the pressures to improve corporate governance are greater than ever before. Major corporate accounting scandals and regulatory directives such as Sarbanes Oxley (SOX) are having greater influence on the everyday lives of executives, with businesses coming under heavy scrutiny, having to justify expenditure and demonstrate control.
Perhaps it is because of these increasing pressures that a new wave of cloud software is gaining popularity. More and more organisations are implementing Spend Control software to take control of expenditure, improve cost-base visibility and ensure that value for money is truly achieved.
Common Expenditure-Related Problems
Few would question the need for Spend Control software. Analyst surveys suggest that as much as 60% of corporate spend is uncontrolled, meaning it does not have proper management approval and it cannot be properly accounted for. For many organisations, the process of controlling spend is just too onerous. It is easier for staff to ignore the formal purchasing procedure and do their own thing, without any useful insight into budget availability.
Even more worrying than a lack of control, however, is the complete lack of visibility in most organisations. Today’s difficult economic climate sees a growing number of organisations attempting to tackle these problems. Whereas recent years have seen CRM and revenue-enhancing technology at the top of the IT priority list, today’s focus is very much on solutions that tighten financial prudence.
The next article (Part 2) in our series of Spend Control Demystified posts is “What is Spend Control?”