The art of spend management: driving better spending in a time of cuts

Many of my connections (and friends) are CFOs. And for some reason they are seen as the generic corporate ‘bad-person’ with worrying regularity. As I said the other day, they are often seen as “the “no” department”–refusing budget requests for things that we need to fulfil our function.

Talking to one CFO the other day they said “most financial controllers still want people to invest even during a period of cost cutting. But they need to look much more carefully at the (Return on investment) ROI of their spend.”

?This is a key area where departments fall down when trying to secure funding - ROI.

?Too often the tendency is to focus on the cost rather than benefit. I see this all the time with organisations that I talk to, either cutting L&D (learning and development) budgets or defaulting to “old faithful” legacy solutions that have bought success in the past, rather than those that might bring success today.

?Although it may be more difficult to secure funding when budgets are being restricted, it’s seldom about cutting all spend lines completely. It’s usually about ensuring that budgets are allocated in the most effective ways possible.

?The recent?Finance and Business Synergy Report?from Pleo finds that 79% of UK organisations say that “you have to spend money to make money”. In times of increased financial scrutiny there is always the temptation to throw the baby out with the bath water as businesses focus on the short-term goals of cutting costs. But Pleo’s research shows that almost half of UK businesses regret making drastic cost cuts in the last 12 months.

?Short-term cuts can hamper any organisation’s chances of achieving their longer-term objectives. One of the areas where businesses might focus their sights in a drive to cut costs was suggested by DLA Ignite’s own Chairperson – have a look at legacy activities.

?This could be a continued subscription to products and services that are no longer being used, or indeed where better options have emerged since these expenses were last reviewed.

?Obviously, this isn’t going to (in most cases) turn a business around. But it is clearly an area where waste and unnecessary expense may be present and easily removed from the overheads.

?Perhaps one of the biggest potential wins though might be using the skills of the finance team to examine cost overruns against budgets on larger projects and see what lessons can be learnt.

?We often hear about massive unforeseen costs attached to large infrastructure projects but this can also be a major concern within any enterprise. The Pleo report says that over three quarters of businesses feel that “effective spend management promotes a culture of responsibility and openness across their business”, which means that creating a more collaborative working relationship between finance and other business functions can help a business to not just run more efficiently but help it to be “adult” in its behaviour.

?In my experience there is still a huge gulf between finance and operations within most organisations. Maybe it’s because people really do view finance as the corporate “no” guys. But this is a ridiculous situation to have arrived at.

?Finance’s expertise enables every department to be both more mindful of how they decide to invest their budgets, and how wisely they can drive ROI. But they need two things: communication, and context. In many cases, getting closer to growth really means getting closer to finance. You might even find they aren’t so bad after all.

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?Want to learn more? Download The Finance and Business Synergy Report?here.?

This post was sponsored by Pleo