Showing value beyond savings

In the last two years, my series of articles has concentrated on the immense importance of accurately recording and reporting the value of the savings and efficiencies that public sector procurement teams deliver. What more can a chief procurement offer, director or even the newest buyer on the team do to raise the profile of procurement in their organizations? Where else can they provide insight, guidance and value to thorny spend-related issues in their organizations which may not have been prioritized before? The next series of articles will cover procurement’s value in the budgeting process, setting thresholds, creating a culture of effectiveness and efficiency across the organization, setting and monitoring social and economic policy goals, reducing potential embarrassing spend-related incidents and providing meaningful benchmarks with other organizations.

Better Budgeting

We often think of the budgeting process as something that happens outside the procurement team ‒ and where the procurement function as a whole gets short-changed again and again. While you are expected to help your departments/customers/users spend their money efficiently and according to the rules, you’re probably given few resources with which to actually do this. Te value that procurement can add to the budgeting process represents a unique opportunity to get into the middle of that process and in so doing, successfully secure more resources for your own department.

How Much Do/Should We Spend On It?

It will come as little surprise to readers that public organizations spend a lot on information technology. After spend was classified for 337 public sector datasets into 30 top level categories, information technology (IT) spending as a whole was the third highest category in city/town governments’ spending, second highest in county governments, third highest in K-12school districts, second highest in higher education institutions and fourth in state agencies. In total, the data used to draw these conclusions contained over $5 billion in IT expenditures. Did these figures match up with what the organization’s budget for Information Technology was? In short, no. In some cases, the estimated budget wasn’t even close to total spend in this category.

General Ledger Costs Vs. Actual Spending

The issues surrounding use of general ledger (GL) codes in analyzing spend are well known to most readers. While they can make the job of procurement spend analysis dif cult, when they are used in the budgeting process without additional classification work, they can fundamentally flaw the process. That’s a very strong assertion considering that use of last year’s expenditures, based on general ledger codes, informs the budget process for nearly every public organization. Each of the examples in the chart above represents a real public organization and the difference between what their GL codes say they spent on IT, and what they actually spent following independent third party classification.

The examples in the chart clearly show both wide and narrow discrepancies between general ledger-based information technology spend and post-classification information technology spend. These are single examples rather than averages across each public sector type, so a conclusion about which public sector type is “better” cannot be drawn. In reality, even in organizations where GL and post-classification IT spend are closely aligned, these may not be ‘good’ as they seem. Just as IT spend can be buried in non-IT general ledger codes (such as in K-12 and city government above), we often find that non-IT spend can just as easily be hidden in IT general ledger codes, inflating the GL-based information technology expenditure figure.

So How Can Procurement Benefit?

If actual spend on IT is nearly three to five times more than budgeted spend in some cases, how can senior management have faith in the budgets being proposed by their department heads? Procurement teams who are analyzing their spend almost certainly have a better handle on what their organization is actually buying than anyone else. They can support their senior leadership by bringing more data ‒ and importantly, more accurate data ‒ to the budgeting process. And in this day and age, when data should be driving decision making, if you’re seen to be the department with the best information in hand, this can only help to ensure you gain additional influence, respect and ultimately more resources.
 

Jonathan White, director of business development (Americas), Spikes Cavell — Xchanging Procurement, USA: 151 Spring Street, Herndon, Va.,20170. 1-800-990-0228; UK 1 Northbrook Place, Newbury, Berkshire, RG14 IDQ, Tel +44 1635 556970.