What’s the buzz about spend analysis?
As featured in the April/May edition of GovPro Magazine, the
official magazine of the NIGP.
Imagine you are part of a family of four and the recession means
that your monthly budget has been squeezed. Gas and food
prices have gone up, and your household income has stayed the same
or gone down. Unfortunately, this isn’t difficult for many of
us to imagine.
So you download a transaction history from your online banking
site, and ask the rest of the family to save receipts for things
that you bought with cash for a couple of weeks. It takes
some time to organize the data, useful pieces of information are
missing, and it’s not easy to categorize exactly what was bought,
but it is manageable to record everything on a piece of paper or a
spreadsheet. Then you get together as a family to discuss
where you can buy things more cheaply, which store gives you the
best membership card rewards, and what household items you could
probably live without. Since money is one of the top
things couples and families fight about, it’s not surprising that
when it comes to deciding what to do to cut spending, the
discussion often turns into an argument.
Now − multiply the number of people who can spend money by
1,000, throw in some complicated rules governing how money can be
spent, remove direct access to the online banking site to download
transactions, and you have the situation that many public sector
organizations face today. That’s how I explain the
difficulties of public sector spend analysis to people who have
never worked in or experienced it before.
Like the household example above, spend analysis really has
three distinct steps, requiring different skill sets, a balance of
priorities, and the right resources, either internal or external,
to complete the steps below:
Step 1:
If you trust the raw data that comes out of your financial
management system, if it includes your purchasing card spend, and
if it contains all the fields you need in order to get accurate
visibility over your organization’s expenditure and contracts, you
are in the minority of organizations and you can skip the rest of
this step. For everyone else, the first step is to collect
the data from its various locations, get it into the right shape,
clean it up so that you trust it when making your decisions, and
add any missing information that you need for your analysis.
Doing this in a comprehensive, repeatable, and timely manner is a
niche skill.
Step 2:
It’s only when you have data which you can trust, in the right
shape, that you can begin analyzing it. Analyzing data really
boils down to looking for patterns − and looking for
outliers. Sorting, manipulating, and pivoting the data in
different ways will raise new questions and bring to light new
opportunities that you wouldn’t have been able to see without
having all of the data in one place. You probably have
preconceived questions such as, “Where have we exceeded our
statutory spend limits, and need to get a contract in place
quickly?” The results of analyzing spend should answer those
questions, but also raise questions you had never thought to ask
before. It takes a certain skill set to manipulate data in
new ways to look for patterns, and it may be that you need to hire
a data analyst, identify the member of your team with the best
analytical skills (even if they aren’t the most experienced in
procurement), or draft one in part-time from another
department.
Step 3:
Once data transformation and analytics are accomplished,
procurement professionals can really use their dominant skill sets:
assessing all the available information, deciding what to do with
the results of the analysis and prioritizing next actions to meet
legal requirements, make savings, and increase procurement’s
over-all efficiency.. The results of the data analysis can
firstly be used to identify the low-hanging fruit, where productive
changes can speedily be implemented, then to plan for medium-term
opportunities and contracting requirements, and lastly, to develop
a strategic sourcing strategy which incorporates long-term
purchasing decisions as well as the structure and technology
required by the organization to achieve those goals. The
difficulty for many organizations is that they aren’t able to −or
allowed to − spend any money or commit resources to going through
steps 1 and 2 before they’re expected to jump directly to step
3. It’s like trying to navigate the best possible route with
an incomplete map and only a scant few co-ordinates.
Why is now a good time for spend analysis?
In the current climate, public sector procurement teams are in a
strong position to argue for the time and resources necessary to
carry out a spend analysis exercise. There’s an increased
focus on external spend as a means of coping with budget
difficulties, and procurement teams are uniquely placed to play a
strategic role in meeting those challenges. The resources,
competencies, and experience level of the procurement team will
dictate which projects can be undertaken, but if you are going to
play a strategic role in your organization’s response to funding
cuts, you first need to have a firm handle on where the money is
going today.
As featured in the April/May edition of GovPro Magazine, the
official magazine of the NIGP.
Published: 4/20/2012
TAGS: spend analysis, procurement data, purchasing data, transforming spend data, cutting costs