The Determine
Blog
Empowering Decisions
August 15, 2017

Budget Management: From procurement savings to bottom-line impact.

Budget Management: From procurement savings to bottom-line impact.

During my family summer holiday trip to San Diego I was confronted with the notion of budget management front and center. To get around during our trip, I rented a mid-sized sedan, but upon arriving at the rental car center I soon realized we had an extra piece of luggage that would not fit in the car. The rental car agent gave me the option of either upgrading to a luxury SUV, which would double the cost of the rental, or wait for a less costly SUV rental that would not be available until later in the day.

Given my impatience after a long flight from Chicago, I booked the luxury SUV, spending twice what I had anticipated on my rental budget for the trip. However, I later adjusted for it by using points to book a hotel on the last night of our stay. Having the flexibility, visibility and control of my options helped keep me in line with my travel budget.  

Meeting the challenge for procurement savings with flexibility, visibility and control.

In the corporate world, managing budgets must be just as flexible. Whether dealing with CAPEX (capital expenditures) or OPEX (operational expenditures), or other projects related to budgets, adjustments in allocating purchasing to different cost centers or accounts, or purchases from different suppliers may be needed. This requires budget flexibility that can adjust to the uncertainty of projects in progress (i.e., availability, cost, etc.), while providing visibility and control to all involved stakeholders for understanding the real-time current state of any particular budget at any point in time.

It’s  the lack of flexibility, visibility and control that’s often been the bane of procurement’s efforts in trying to align with finance. To demonstrate this point, a recent study by the consulting firm Protiviti shed some light on this very dilemma. Among the key findings from Protiviti’s 2017 Procurement Survey is that close to half of finance leaders believe that only 20 percent or less of procurement’s savings drop to the bottom line. In addition, most procurement and finance leaders rate the sourcing process as less than “very effective.”

What would you estimate to be the percentage of savings achieved by the procurement function that is dropping to the bottom line?

Protiviti 2017 Procurement Survey

Source: Protiviti 2017 Procurement Survey

Moreover, the primary causes of savings not dropping to the bottom line are that budgets are not enforced and “savings” are spent in other areas, demonstrating an inability to adjust for changes in needs or specifications. Without proper flexibility, visibility and controls, adjustments to budgets can not be made, increasing the risk of saving being diminished.

Tools for advanced agility: Giving procurement an “unfair” advantage.

What is needed are budgeting tools that can easily accommodate changes while simultaneously apprising those involved. As highlighted in Paystream Advisors’ whitepaper, Budgeting for Electronic Procurement, source-to-pay (S2P) platforms such as Determine are designed to recognize the importance of transparent, real-time budgets for businesses with complex operations.

To that end, here are just some of the main capabilities of advanced budgeting that are valuable and/or critical for budget planning:

  • Ability to manage many budget types — Offering distinct functionalities for many types of budgets, including OPEX budgets, CAPEX budgets, project-based budgets, and contract-based budgets, provides flexibility for managing across needs and business groups.
  • Addressing the budget lifecycle in a fluid way — An organization needs the ability to tailor the tool to its own budget lifecycle strategies. These include methods for importing budget data from external systems, planning, forecasting, execution, renewal processes, establishing the hierarchies of budget approvers and owners, and the construction of budget levels, milestones and phases.
  • Creating simplicity for matching and linking spend to budgets — Automatically matching spend to budgets based on purchasing information, such as cost centers, commodities and GL accounts simplifies management. Each budget owner can see their spend against budget in real time, and the solutions can also support budget renewals and updates.
  • Creating custom approval rules for visibility — Based on the budget owners’ needs, creating custom approval rules enables budget management against varying requirements. This creates the requisite visibility for closely managing and overseeing the allocations that impact the budget.
  • Establishing system controls to prevent overruns — Configurable controls help to protect company assets; an administrator can set hard or soft stops for certain budgets’ limits, and can designate which approvers have the authority to override those limits.
  • Gaining real-time visibility of any budget — With real-time information on all spend activity, a budget owner can track spend against a budget as soon as a purchase is made or requested using built-in budget trackers on procurement dashboards and KPIs.
  • Integrate with financial systems for accuracy — Budgeting information should also flow through to an ERP, even when an organization uses the solution to monitor budgets across different locations and subsidiaries. This not only allows approvers to make more informed decisions, it also helps with compliance and accuracy in financial reporting.

Overall, Determine’s budget management business app on the Determine Cloud Platform contributes to a company’s performance by helping them manage their intrinsic needs: that is, how to define, monitor and manage budgets to reduce maverick spending and improve forecasting.

By integrating financial data updated for the entire purchasing cycle, as well as integrated reports and customizable alerts, organizations can significantly reduce non-compliant spend, strengthen financial controls, and make better, strategic decisions that align procurement and finance.

To learn more about our budgeting solution, financial management capabilities or wider source- to-pay technology features on the Determine Cloud Platform, here are some additional resources:

Webinars

White Papers

To see how our budgeting and other capabilities can work for you, schedule a personalized demonstration.

 

Top