Three Reasons Why Spend Analytics Is The CFO s Next Major Focus

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1 Three Reasons Why Spend Analytics Is The CFO s Next Major Focus A Rosslyn Data Technologies White Paper info@rosslyndatatech.com 1

2 Three Reasons Why Spend Analytics Is The CFO s Next Major Focus You ve already got a lot of spend data isn t it time you put it work more effectively to manage cash, compliance and risk? Procurement professionals within your organization might have a grasp on what is being spent and where. But as the leader of an organization s finance function, you should be asking who else might benefit from that kind of insight, and what extra value can be derived from it. After all, spending the company s money has become a decentralized task in many workplaces. But if the information needed to make the best possible decisions on how to spend that money hasn t also been decentralized, you could have a problem too much spending and not enough analysis. According to a survey by EPM Channel, 70% of finance professionals said too much time is taken up putting out fires rather than on analysis. A lack of access to data was highlighted as a reason for this 25% of respondents. The same research found that 50% of senior finance executives believe that finance can deliver game changing decision support, but less than 15% say that it is what is being delivered today. In other words, there is a gap between expectation and reality. When spend data is used properly it can unleash a torrent of untapped opportunities. That could mean better understanding of how spending ties in with wider business goals, such as supplier diversity or supply chain risk. Or it could mean showing colleagues how the right accounts payable processes can help them make big savings, and make their departmental budgets go further. In this paper, we ve highlighted three vital areas where improved spend analysis can start to facilitate better decision making, and we have provided examples and anecdotes that should explain why the modern finance leader is embracing this approach. info@rosslyndatatech.com 2

3 1 Cash we all know it s king, but are you treating it like royalty? It s not news to any finance professional that cash is the lifeblood of any business. But keeping track of how it s spent and producing accurate cash flow forecasts is becoming ever-more important, as the speed at which business decisions need to be made increases in parallel. Overpayments Whether it s a simple data-entry error, or mixing up multiple accounts for the same supplier, every business faces the risk of making overpayments. You can t eliminate human error, but you can mitigate against some of the fall-out from over-payments if you have the right technology and policies in place to interrogate your data effectively. In a survey by CFO Research, 95% of respondents either agreed or strongly agreed that over the next year (their) companies will need to extract greater value from financial and operating information. Dealing with over-payments is costly and time-consuming. The faster you identify an over-payment the easier it is to recover it. Audit your own purchase ledger regularly to extract that extra value by picking up on instance of duplicate payment and investigate them. Forecasts The same survey from CFO Research found that one of the key CFO priorities for 2014 is improving efficiency/cutting costs, according to 48% of respondents. But, without reliable forecasts, built on real data-driven insight, those attempts at improving efficiency could end up being dictated by trial and error. The more meaningful your cash flow forecasts are, the better your decisions are likely to be. So wouldn t it make sense for your forecasts to based on current data and predictive analytics? Run your forecasts through a few different scenarios. If your business is seasonally affected you need to take into consideration what might happen if that season is shorter (or longer) than usual? Analyze the likely outcomes of an additional investment in people or equipment? If you can t squeeze the right margin out of a planned investment, maybe you need to reconsider it. info@rosslyndatatech.com 3

4 1 Cash we all know it s king, but are you treating it like royalty? Relationships This is closely related to how money is spent is the small matter of who you are spending it with. The topic of supplier relationships touches on the point made earlier, about suppliers with multiple sites there will be times when you are doing business with suppliers who are part of the same parent group, even though they might trade as separate legal entities. There are opportunities to be had from grouped suppliers, if you know how to identify them. You need to quickly and easily identify those suppliers that are in the same group. Once done, that can be the basis for negotiating preferential terms based on trading volumes. Make sure these suppliers are flagged for easy identification by your info@rosslyndatatech.com 4

5 2 Compliance there s more than the devil lurking in the detail More than half of all finance executives believe that following the rules is going to cost them more throughout 2014 than in previous years, according to CFO Research. That might sound like a negative statement, but if you thought following the rules was expensive, you should think about how costly it could be if you ignored them. Contracts Contracts are the bedrock of business and the terms within them dictate the ebb and flow of finance within an organization. It might not always be the case, but in some contracts there are vitally important clauses that can have a real financial impact on the business. One such clause might, for example, concern the renewal of the contract; some contracts have automatic renewal clauses, or lengthy noticeof-cancellation periods. These have the potential to tie you into an unexpected and unplanned expense for a considerable period of time. Key data needs to be captured and referenced by your finance platform. Contract renewal dates and notice periods should trigger automatic alerts. If this can be done automatically, so that the right decision can be made at the right time, and potentially huge costs to be avoided. Preferred suppliers If you have a procurement team there s every chance they will have compiled a list of preferred suppliers, with whom they have negotiated favorable terms on everything from price to shipping, through to invoice due dates. As the lead person in the finance team, you should be ensuring that those preferential terms are being fully exploited, and that no one with purchasing responsibility in the organization is buying from suppliers other than those with preferred status. Unless, of course, there s a very good reason. Favorable terms are meaningless unless you take advantage of them. Anyone likely to raise a PO needs to be aware of your preferred supplier list and why they should be using it. Going off-list can expose your organization to unforeseen costs and risks. info@rosslyndatatech.com 5

6 2 Compliance there s more than the devil lurking in the detail Volume discounts One great reason for staying on-list when purchasing can be volume discounts triggered when you hit a given threshold. You need a platform that will interrogate your data, and that can make potential savings like this apparent, so that your people are able to make the right decisions and choices. You already have this data within your organization it s just a matter of capturing the knowledge contained within it and using it effectively. It s in both parties interests that you extract maximum value from your supplier relationships. If you re going to order $100,000 of Product X per year, and you get a 5% discount from one supplier once you hit the $50,000 threshold, that s where you want to maximize your spending. Discounts help budget-holders money go further, so educate them on the benefits of extracting as much value as they can from your suppliers. info@rosslyndatatech.com 6

7 3 Risk getting to know your suppliers One area of business that has grown in complexity in recent years is that of risk. Once it was primarily concerned with credit worthiness and fraud. Now, in addition to those still important considerations, there are other factors facing business leaders. Credit Credit scoring is de facto for most finance departments. But don t let complacency creep in, especially when other departments have a say in selecting suppliers. When it comes to onboarding new suppliers, knowing which have a better trading history, and which have a chequered past, will make the selection process less fraught with difficulty. No one is immune from poor trading circumstances, but you need to spot patterns of trouble before it s too late. Knowing which of your existing suppliers might be struggling can enable you to make the right decision about where to place your next big order. This is the kind of information that can help you decide if putting all your eggs in one basket, in pursuit of that attractive-looking volume discount, really is the right move. Location In its Procurement Agenda research, Hackett Group found that 70% of respondents are factoring supply volatility into business strategies, while 47% are factoring in supply chain risk and 36% geopolitical risk. This is something to take inspiration from. If you re not already, you should start by analyzing the risks associated with your suppliers geographical location. These are relatively new areas of risk assessment, but everything from climate change to political unrest now has the potential to impact greatly on business, and this is a situation that is unlikely to become less complicated any time soon. If you are a domestic business, are too many of your suppliers located in a high flood risk area? If you are trading internationally, what is the risk profile of those areas and how might that impact on your supplier relationships, your operations and your people? Do you have a contingency plan in place, and if not, why not start to draft one? info@rosslyndatatech.com 7

8 3 Risk getting to know your suppliers Employee fraud Sadly, people can be the weakest link in your chain when it comes to risk. Whatever their motivation might be, the people with an intimate working knowledge of your business and its systems are the ones who are best placed to exploit its vulnerabilities. According to a recent study by Deloitte Financial Advisory Services, fewer than one-third of businesses are deploying the kind of data analytics tools that can detect fraud or waste by vendors, 13% have the right tools but are still coming to terms with using them, and 22% have no data analytics capability at all. Any and all unusual activity, including an expected volume in an otherwise normal activity, needs to be logged, flagged and investigated. Audit trails need to be made available, documenting a chain of events to anyone conducting such an investigation. You may also need limits of responsibility enforced automatically by your finance platform. info@rosslyndatatech.com 8

9 Data is the Key to Unlocking Spend Analytics Ultimately, all of these spend analytics roads leads back to the importance of data in being able to unleash the opportunities that spend analytics can provide for more than just procurement. Without quality data, you will never be able to achieve basic, let alone improved, spend analysis. But this doesn t need to be considered an insurmountable headache. Another problem to add to an ever-increasing list. By taking the right approach to data quality and management, it will be significantly easier for your and the rest of the organization to achieve true spend insight, and focus on the valueadded activities outlined above, rather than trying (and failing) to manage data on a micro-level. The cloud offers CFOs (and the rest of the organization) the best opportunity to be able to gain control of spend visibility and achieve rapid ROI. This is because cloud-based spend analytics platforms offer all of the features (and more) of on-premise systems, without the need for costly and time-consuming implementation and maintenance. When CFOs use spend data as effectively as possible, it generates more insight and added value than previously thought possible, and can only be achieved through bottom-line improvement. Complete visibility, no punitive investment and rapid ROI Rosslyn Data Technologies (AIM: RDT) exists to challenge the traditional methods of managing and exploiting data. We have designed some smart and intuitive technologies that allow you instantly connect and organize your company s data like never before. You are now able to create your own business insights using our data platform that features simple, consumer friendly self-service tools to integrate, cleanse and enrich information. For more information including a demo, visit Rosslyn Data Technologies Corporate Headquarters Fox Court, 14 Grays Inn Road, London, WC1X 8HN UK T: +44 (0) US Office 332 S Michigan Ave Chicago, IL T: info@rosslyndatatech.com 9