In an environment of a great economy, businesses are still being forced to do more with less. This is true in the Expense Management space with management asking for specific cost-cutting measures to reduce expenses. In addition, the tight job market caused by fewer personnel entering the job market and baby boomers retiring is creating a labor shortage that is dictating that certain tasks be outsourced or automated to reduce personnel costs.
Certain tasks in the Accounts Payable field cannot be automated, however, they can be outsourced. Cost savings can be achieved by outsourcing certain accounts payable tasks but, what about the savings on business costs that are being mandated by management? Who will be responsible to identify the savings goals, assist with optimization, and then measure the savings and business benefits?
In an Expense Management environment, governance of the contract and relationship is critical to the success of the project but, it is also one of the aspects of the relationship that is often overlooked. Ensuring that key performance indicators (KPIs) are met should be a task borne by each stakeholder, as well as, the business partner or vendor. Identifying a clear directive of those areas of importance to be measured, and who is responsible, will create a governance plan that is fully transparent and valuable.
What are the Optimization Goals?
What optimization goals have been handed down by management for 2020? It is important to identify specifically where management wants to save costs. Are there specific business services that have been identified for cost reduction, i.e. Waste, Telecom, Energy, Cleaning and Janitorial Services, etc or are the cost reductions more in line with personnel? Knowing where you need to reduce costs will enable you and your team to quickly identify those areas that could be investigated to determine if optimization is possible and cost savings could be achieved.
Often times there are business costs that are not considered for reduction because they are determined as “required” for doing business. While this may be true, quantifying the cost and then qualifying the need and vendor providing the service could lead to substantial savings. Prioritizing business values will enable management to understand what goals should be set and those goals that can achieve the fastest cost reductions and benefit realization.
Measuring for Success!
Having a clear goal and then assigning specific metrics to measure the success will enable all stakeholders to have transparency with management and the vendor. “Cutting cost” is not a clear goal, as goals must be specific to the type of business service and the vendor that is providing those services. A few good metrics that can be easily put into place are:
- Reduction of monthly cost – Create a baseline with the current vendor with and without taxes and additional fees, and then add in the new monthly cost in the same manner to show monthly savings.
- Changes in services – Quite possibly there was no reduction in cost but you received a greater level of service that did not include a cost increase. Quantify the service increase and value that service within your organization.
- Changes in terms – Changing the payment terms to include a longer payment timeframe or a discount should be quantified and shown as monthly savings.
- Establishing Key Performance Indicators (KPI’s) – Ensuring that the KPI’s are met monthly with specific cost reductions if they are not met; should be monitored and shown as savings.
Governance is Key!
Many times the plan looks good on paper and as soon as the contract is signed, this paper goes into a file, never to be reviewed…. Until there is a problem with the vendor or services. Good governance will ensure that a plan is in place from the moment that the contract is signed, and will follow through the entire life of the contract. Each of the measurement areas listed above should be designated to a specific stakeholder to ensure that terms and service levels are being met. A monthly or quarterly report identifying the savings, changes in services or terms, and the KPI’s that should be discussed with the vendor will ensure that the promises made during the contract negotiation will be promises kept by the vendor.
According to Gartner, “All organizations share similar priorities and challenges; however, the key differentiators between the leaders and underperformers are attitude and action.”
Having a clear goal of what needs to be optimized and where savings can be achieved is the foundation of your optimization and cost-cutting plans. Identifying those business services that can be optimized is a critical part of the plan and can mean the difference in spending time on fruitless objectives or strategically cost-cutting for your business. Knowing what you want to measure and how you plan to measure will mean the difference in proper or poor governance. Being a leader in your organization’s optimizations goals will encompass all of these key areas.