Failing to analyse how an
organisation utilises its finances will increase its costs and prices by 7 – 9%
(£2.1M—£2.7M) more than the open market within a £30M annual budget. Over a
typical average Framework Agreement of four years, this will equate to
increased costs of £9.3M—£11.2M on a total budget of £120M.
Within the public sector,
organisations are limited in how much they can increase their revenue. The UK
social housing sector is governed by the Government's Social Housing policy and
policy statement on Rents for Social Housing.
Spend analysis is essential
to understand how an organisation utilises its financial resources before
taking the necessary steps to ensure they are spent effectively. Purchasing
more by spending less is crucial to maximising the efficiency and effectiveness
of an organisation’s financial resources.
A Category Spend report is
more detailed than a traditional financial budget, which may contain
information on up to 60 areas of spending. It may contain details of up to 500
spend areas to provide a more detailed and deeper understanding upon which
budget managers can base their tender or negotiation decisions.
The imposition of spend
categories allows spending patterns to be discerned at their lowest, most basic
level, ensuring that the spend category can be managed more effectively and
that quality and supplier management is simplified and more controllable.
Ensuring that financial
resource use efficiency is maximised can be broken down into several crucial
steps. It is essential to take a logical approach to develop a commercial plan
to reduce costs. The ideal place to start is a list of Supplier Invoices for
the last 24 months to ensure that all regular and irregular spending is
captured within the analysis.
The next stage is to assign
spend categories to each area of Supplier spending. The assignment must
accurately depict what the spending is used for. However, where a Supplier's
spending is used for purchasing assorted products and services, the Spend
Category must be assigned to the highest financial value of the products and
services purchased.
It is essential to
prioritise the tendering or negotiation of spend categories based on the
potential benefit of the outcome, but equally important is to ensure that the
risks of Health and Safety and legislative compliance are also considered.
However, this requires
organisations to become proactive in reviewing and coordinating their tendering
and negotiating activities and engaging with stakeholders to undertake the
appropriate negotiations based on accurate spend data. This provides the spend
category reporting for budget managers to prioritise their tendering and
negotiating activities.
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quality, efficiency, and effectiveness of their product and service supply to
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