How do you identify and prioritize the most relevant spend analysis metrics and KPIs?

1 Step 1: Define your objectives and scope

Before you dive into the data, you need to have a clear idea of what you want to achieve with your spend analysis and what aspects of your spending you want to focus on. For example, do you want to identify savings opportunities, monitor compliance, assess supplier performance, or improve sustainability? Do you want to analyze your direct or indirect spend, or both? Do you want to include all categories, suppliers, regions, or business units, or only some of them? Defining your objectives and scope will help you narrow down the metrics and KPIs that are relevant and aligned with your goals.

2 Step 2: Understand your data sources and quality

The next step is to understand where your spend data comes from, how it is collected, stored, and maintained, and how reliable and accurate it is. You need to identify the data sources that are relevant for your scope, such as ERP (enterprise resource planning), P2P (procure-to-pay), contract management, supplier relationship management, or external market data. You also need to assess the data quality, such as completeness, consistency, validity, timeliness, and granularity. Understanding your data sources and quality will help you determine the feasibility and reliability of the metrics and KPIs that you can calculate and monitor.

3 Step 3: Choose your spend analysis dimensions and categories

The next step is to choose the dimensions and categories that you want to use to segment and analyze your spend data. Dimensions are the attributes that describe your spend data, such as supplier, category, region, business unit, contract, or payment term. Categories are the groups of products or services that you purchase, such as office supplies, IT, travel, or marketing. Choosing your dimensions and categories will help you structure your spend data and identify the patterns, trends, and anomalies that are relevant for your objectives and scope.

5 Step 5: Prioritize your spend analysis metrics and KPIs

The next step is to prioritize your metrics and KPIs based on their importance and impact for your objectives and scope. You need to consider the value, relevance, and feasibility of each metric and KPI and rank them accordingly. You can use a prioritization matrix or a scoring system to help you with this step. Prioritizing your metrics and KPIs will help you focus on the most critical and actionable ones and avoid information overload and analysis paralysis.

6 Step 6: Review and refine your spend analysis metrics and KPIs

The final step is to review and refine your metrics and KPIs periodically and as needed. You need to check if your metrics and KPIs are still aligned with your objectives and scope, if they are still accurate and reliable, and if they are still providing useful and meaningful insights. You also need to update your metrics and KPIs based on the changes in your data sources, quality, dimensions, categories, or business environment. Reviewing and refining your metrics and KPIs will help you ensure that your spend analysis is always relevant, current, and effective.