How to do Spend Analysis Fast

How to do Spend Analysis Fast

One of the most cumbersome problems that fast-growing companies face is keeping track of all their expenses. Companies tend to know how much they spend on the ‘important’ things like rent, salaries, and marketing. However, the ‘little’ things like travel, office supplies, and meal expenses might be hard to keep track of. And the little things always add up!

CFOs need to conduct spend analysis to effectively keep track of all the company’s expenses. And there’s much more value to spend analysis than merely knowing your costs. In this article, we’ll shed more light on what spend analysis involves, how to do it well and how it can make a real impact on business value.

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What is spend analysis?

Spend analysis is the practice of reviewing and examining a company’s spending behavior. This involves knowing what the company’s money is being spent on, who is spending it, when it is being spent, and whether you’re getting what was expected from that spend. Insights gained from this analysis can be used to develop cost reduction and productivity improvement strategies.

You may be wondering what the practical benefits of spend analysis are. Firstly, conducting spend analysis allows procurement teams to understand their spending patterns and assess the performance of vendors. This leads to strategic sourcing, as insights can be leveraged to negotiate better payment terms, reduce cycle times, improve supplier selection, and seek ways to reduce supply chain risks and refine their sourcing strategy.

Furthermore, the spend analysis process helps to eliminate guesswork. By having clean and complete spend data, it ensures financial reports are as accurate as possible.

Many organizations also tend to have ‘maverick spend’ situations, with purchases made outside of agreed contracts. Effective spend analytics will expose unusual or fraudulent spending, which will help with the bottom line.

Finally, spend analysis will bring about spend visibility. This means you will get a clear picture of the outflows of money and actionable insights from spend data, which will influence managerial decisions going forward.

How to do spend analysis

Spend analysis is not a one-size-fits-all process; however, it is beneficial across all companies when done properly. So, where should you start?

  1. Set your goal
  2. Find the data
  3. Organize the data
  4. Clean the data
  5. Categorize the data
  6. Analyze the data

Before embarking on your spend analysis journey, it helps to have a particular goal in mind. This will help frame the analysis and help you look for patterns in spending to achieve a particular objective. For example, you may want to:

  • Find opportunities for cost savings in specific categories
  • Identify and eliminate invoice fraud and maverick spending
  • Find efficiencies throughout the procurement process
  • Reduce supply chain risk and diversify vendors
  • Improve the accuracy of your spending forecasts

The next step is to identify the different sources of spend data across all business units and teams. Some of these sources include:

  • Spend data from your e-procurement platform
  • Corporate card transactions and company bank accounts
  • ERP systems
  • Invoices and purchase orders
  • Payroll platform
  • Manual spreadsheets

Identifying the sources of data is not an easy task, as there are various places you’ll need to look. However, if you focus on the organization’s financial units like the procurement, finance, and marketing departments, you should be able to gather all the information you need.

Finding the data can be particularly time-consuming if there is no single source of data. Most organizations don’t have all their financial data within one platform, and some may not have data at all due to a failure to keep appropriate records.

Now that you have identified your data sources, the next step is to pull it all together into a uniform format. Since financial data from various systems can be in different languages, currency, time zones, and formats, organizing the data is needed to enable comparison or analysis. While this can be an incredibly tedious process, it is essential for creating one source of truth for analysis.

The next step is to perform a ‘cleansing exercise’ on the organized data. This process involves identifying and eliminating inaccurate, obsolete, and unnecessary data. Make sure to look out for duplicates, transaction errors, or category errors. The cleansing process ensures that the data you have collected is accurate, complete, and relevant.

The aim here is to group spending, so it’s easy to analyze. Categorization can be done in many ways—you can:

  • Organize expenditures into appropriate spend categories, which can also be easily mapped to budget line items and general ledger accounts
  • Organize the company’s different suppliers into groups for effective supplier management, e.g., based on spend category, payment terms, frequency of purchase, geography, etc.
  • Use a standardized categorization system to classify spend, such as the United Nations Standard Products and Services Code (UNSPSC)

When categorized appropriately, procurement teams can easily make comparisons to evaluate procurement performance, assessment across business units, or even against industry peers.

Now that you have an accurate and complete data set, it’s time to analyze it. You can slice and dice this dataset depending on the goal you initially set out to achieve. For example, if you were looking for potential savings, you could identify redundant subscriptions no longer being utilized. Or if your goal was to improve the supply chain, you might use the data to identify and switch spending to higher performing vendors to negotiate more favorable pricing with them.

The data is also useful for contract management as you will be able to see if the company is getting the best deals out of its contracts.

Spend analysis tools

As you can see, spend analysis can be a daunting task, but there are easier ways to get it done. You can either use spend analysis tools or spend management software for this purpose.

Microsoft Excel

Microsoft Excel, the well-known spreadsheet software, has been the go-to over the years for compiling data. You are able to organize, format, calculate, and chart data with various formulas and functions. However, Excel can be time-consuming as most of the actions must be done manually. It is also cumbersome running data across thousands of rows and columns.

Business Intelligence Tools

Business intelligence platforms are useful tools for spend analysis. These tools allow you to match expenditures with respective revenues easily. This helps with spend visibility and insight on how the company is performing when it comes to procurement costs.

There are different types of Business Intelligence tools, including SAS business intelligence, Qlikview, Microsoft Power BI, etc. Each of these business intelligence tools can handle immense data sets while giving you actionable insights in real-time.

Spend analysis software saves you valuable time

It’s difficult to conduct effective analysis when all your time is spent locating, organizing, cleaning and categorizing your data. The right spend analysis solution can do the leg-work for you, freeing up your time to focus on analyzing the data and developing strategies for improvement.

Lola’s spend management solution captures spend data across the whole business in one place, including employee and procurement spend. The software automatically consolidates data by categories set by you, in a uniform format. Because it provides access to accurate spend data at all times, it enables real-time tracking of corporate spend, trend identification and decision making to control your procurement process. All this without wasting time locating, organizing, cleaning, and categorizing your data.

FAQ

What is spend analysis?

Spend analysis is the process of reviewing and examining a company’s spending behavior in order to make changes to reduce costs, increase efficiency or improve the supply chain.

How do you do a spend analysis?

Find the relevant data across your business units and platforms; organize the data into a uniform format; clean the data for errors, then analyze it.

What is spend management?

Spend management is the process of collecting, cleaning, analyzing, and controlling cash outflows at your company.


About the Author: Jemima Law
Jemima is a finance writer with a professional background in Corporate Finance. She is also a small business owner who hates reconciling business spending with a passion.