5 Steps for Spend Analysis in Financial Management

By Marianne Chrisos - Last Updated on January 6, 2020
Spend Analysis in Financial Management

If your business has a procurement department or functions as a procurement organization, you need to make spend analysis a part of your process. Spend analysis is an essential kind of reporting for understanding how much your business is spending on projects company-wide. It helps identify unapproved spending and cut back on excess spending over time.

Ultimately, a spend analysis helps businesses understand not just where their money is going, but if they’re getting the best deal on products and services, if they’re using their current product and services enough to warrant the cost, and if their suppliers are delivering on their contractual obligations. It’s a way to track spending, but also a way to save and get the most out of your business’s budget, and a hugely crucial step for successful financial management of your firm. Here’s how to conduct a spend analysis for your business.

Steps for Spend Analysis

  1. Gather all your data

This might be one of the most labor-intensive parts of your supplier spend analysis project. The full procurement and spend data of your organization is likely housed in disparate places across departments, so you’ll need to track it all down. This might mean going through the budget and accounting information for each department or even each project. Gather all the invoices and payment information from your accounting and financial software and any other sources that contain payment and ordering information, then enter it into one central supplier spend database.

  1. Standardize the data

It’s important to make sure that the data is cleaned and standardized. This means making sure everything is in the same currency, or that each report contains the same necessary fields, such as the purpose of the order, the vendor, the data of the order, etc. This helps when comparing vendors and order items.

  1. Identify suppliers

Different departments might use the same vendors and suppliers for different, seemingly unrelated projects. Some departments might not even know both are using the same supplier, and the business could potentially be saving money by grouping these projects together. This is one of the purposes of the spend analysis.

Vendors like Microsoft, Office Depot, and Adobe may have contracts with different departments, and so spending for all like suppliers should be grouped together so that during analysis it can be decided if grouping projects or contracts together can help increase savings or reduce waste.

  1. Categorize purchases

It’s also important to categorize your data. This helps you understand what departments, individuals, and projects take up the most spending. Common categories include:

One benefit of categorization is that you can see trends in certain areas. If office supply spending is erratic, it might make sense to move towards a bulk-purchase model to help decrease orders and save on shipping, for instance.

  1. Analyze

Now is when you can see how much is being spent over a determined amount of time, as well as where the money is going, if any duplicate payments have gone out, if contracts include hidden charges, or if vendor contracts can be re-negotiated to serve your business units better, or it’s time to drop certain suppliers all together.

Top Spend Analysis Tools

There are plenty of tools on the market to help you conduct accurate spend analysis reports, no matter what your business budget.

  • Excel: This basic database builder is a no-frills way to calculate and analyze your spend. It can be challenging and difficult to scale as a business’s spend grows, but it’s an efficient way to calculate and organize data. It doesn’t provide the robust visual analytics of other tools, but it is an inexpensive solution that gives companies a great place to start.
  • Power BI (Business Intelligence): This is a great suite of application built by Microsoft that helps unify data from different departments and places across the organization. It helps customers easily organize vendors, offers insight into the purchasing cycle, and data on the number of contracts and purchase orders that a business has. It offers the additional benefits of being able to see data in real time. It’s more expensive than an Excel solution, but it also offers information and data visualization that’s easy to read and easy to understand.
  • JAGGAER: This software offers companies another way to identify cost savings opportunities and make better decisions when it comes to sourcing and suppliers. This spend analysis tool makes reading your spending data easy and helps you answer questions like, “Am I getting the most for this vendor contract? Is this supplier compliant? Am I spending on services we no longer use or have a need for?”
  • Tableau: This solution is a top ranked industry business intelligence tool. Users love how intuitive and easy to use their interface is, and businesses have found their robust data analysis and visualization tools to help them better identify problem areas and imagine the possibilities.

Spend analysis is key to understanding your operational effectiveness. Make the time to find the right tool for your company and then use it to examine your sourcing and procurement spending data to help you identify savings opportunities and have more insight into your organization. This investment of time and money will help you save both in the long run.

Marianne Chrisos | Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a company near Dallas and contributing writer around the internet. She earned her master's degree in Writing and Publishing from DePaul University in Chicago and has worked in publishing, advertising, digital marketing, and content strategy.

Marianne Chrisos | Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a c...

Related Posts