Securing Organisational Cost Effectiveness

Failing to analyse how an organisation utilises its finances will increase its costs and the prices incurred by 7 – 9% higher (£2.1M - £2.7M) 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 that may contain information on up to 60 areas of spend. A Category Spend report 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 spend. The assignment must accurately depict what the spend is used for. However, where a Suppliers spend 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 of the tender or negotiation, but equally important to ensure that the risks of Health and Safety and legislative compliance are also considered in prioritising the tendering or negotiation of spend categories.

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, which provides the spend category reporting for budget managers to prioritise their tendering and negotiating activities.

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