Spending smart, as with many other things related with business, is an art form. We have all heard the adage, “Never spend your money before you’ve earned it”. And this is as a fact that many of us understand. But how do you save money, you haven’t earned yet? This is another question that we provide the answer to. How, you may ask?
By Spending Smart!
➤ Word from the wise, many people have tried and failed at this. Because they do not know how to calculate risk. They do not take into account the many stakeholders involved in the process.
➤ Their decisions, and their interests. If all of these are streamlined, we can do something that seems impossible.
But how do we Spend Smart?
➤ By motivating the work force of course! Higher the level of passion an individual has for his work, the higher will he save for his company. Imparting a mindset of ownership to the people working for your company has been shown to be favorable in this aspect.
➤ No less than 82% of organizations the world over are investing in ways to spend less, or rather, spend smart.
➤ Cost Cutting usually involves having to take a top-down approach, where a new methodology is rapidly implemented throughout a company. But recent studies have shown that, the entire process has much more to do than telling your employees on how and where and when they should spend smartly.
Remove all forms of bias from the minds of your employees:
➤ And take advantage of the ones that need to be leveraged in the best interests of the company.
Sunk-cost bias, is something that has to be taken out of the picture.
➤ Investing in a process that is, at the end of the day, redundant, isn’t doing any of us any favors. This is one thing that prevents many individuals, and organizations at large, from spending smart.
➤ The nudge effect has proven to be effective in this process. By showing your workforce how their peers in other companies are working, integrating cost-effective mechanisms into their work ethic.
Save, Save, and Save.
➤ By saving every which way you can. For example, renting a server and renting the office is a much more cost saving initiative than actually buying the hardware and purchasing the real estate. Saving should be a mentality that the whole workforce imbibes.
And with the right tools this is possible. Tools we have perfected here at Chools.
We specialize in cost benefit analysis, and activity based costing.
Smart Spending - Case Study
A premier FMCG company was facing wastage in terms of travel expenses for senior level management. Travel expenses and overnight stays for interdepartmental conferences that spanned different cities. Also, mid to senior level management, who were expected to meet clients at the client’s location were putting a strain on the spend parameters previously set by the company. Travel bookings were done on a short notice, which heavily increased the amount of spend for travel.
After taking a focused approach on the various issues faced by the company, the most vexing of them were identified, and solutions arrived upon. The company’s budgeting was tightened, and all the employees regularly intimated on the new budget for business travel.
Several targets were set for the company where they could spend smart. Some of them being.
✔ A year to date save of $2MM.
✔ For each operating unit and plant, a smart spend policy was adopted based on Zero based budgeting.
✔ Every employee who travelled for the company was expected to book at least 2 weeks in advance.
✔ The importance of telepresence rooms was stressed upon in place of actual travel for important business meetings
✔ Policy changes were conveyed to the employees through formally conducted open houses.
Travel bookings and cost KPI’s were shared on a regular basis to the senior level management.
As a result of the company rigorously following these statutes, a save of $3MM was achieved.
A pioneering FMCG company has found itself at a crossroads when concerned with its spending habits. Smart Spending was required when it came to the contractors and the consultants that were required for smooth functioning of the company. The lack of clarity between the definition of consultant and contractor added to the problems the company was facing. Money that could be saved, was lost, because of low data visibility on the two.
The company sought out a solution, by rolling out a Smart Spend Policy that uniquely addressed these factors.
Many were the problems that faced the company, and they identified the issues one by one.
They went on to solve them by implementing processes, several of which downsized the company’s dependence on independent contractors.
Some of them are –
✔ To increase governance, the Manpower Service provider agency was replaced in favor of a company driven recruitment process.
✔ Central implementation of new Manpower Service provider.
✔ A transaction processing cell was used to track Purchase Orders.
✔ Approval of addition or replacement of new resources was made a necessity.
✔ Centralized accounting was implemented for tracking the contractors cost, for enhanced visibility of details.
All Purchase Orders made through Contractors, were directly tracked through the TP Cell of the company, simplifying the process of procurement. The company was able to make a year to date save of $1.6MM, surpassing the target of $1.5MM.