Have you ever wondered about the difference between managing budgets versus managing spend? The reality is, most professionals don’t think or worry about the seemingly slight dissimilarity. They believe, in fact, that they are actually the same thing. This is understandable given the analogous linguistic nature of the terms used, but in reality, the terms “budget” and “spend” in this context will always be very different.
Budgets are planning tools (first and foremost). We monitor them, spend time looking at how various projects affect them, and they can be “modified” at any time based upon factors out of your control. All you have to do is look what happens to travel or hiring budgets to realize that no matter what the budget “says” I you can do, the reality may say different.
On the other hand, spend is actual. When the check is written, the money is withdrawn and if you write too many checks, you will eventually see an empty account. As opposed to managing budgets, managing spend can require a more active and vigilant approach. Upon analysis, you may realize that you are spending real money that could be spent in other places, for other projects.
There are lots of real life examples, and your organization might be experiencing this as you read this, and you don’t even know it:
- Software Licensing – all major software vendors have their own rules around licensing, some are easy to understand, and others are not. Regardless of your contract, do you monitor usage? Is there an easy way to see the pool of licenses, their use, their cost and how that translate to your contract? Do you have a policy about allocating these pools? Think about the money being spent (or saved) if you have just 5% of your total licenses not being fully utilized. Real money is being spent on that 5%, so maybe 95% is not good enough.
- Idle Hardware – what happens to older hardware within your organization? Even if there are $0 being spent on support of that hardware, it is taking up space and consuming electricity. Nothing in our always-on, always-available world has a zero cost, and idle hardware (everything from servers, to network equipment, to laptops) costs real money – once again, if it is just a small percentage of your overall spend, that money could be reallocated to something else – I’m sure there is a project or two that is underfunded today that could use it.
- Missed SLAs and Contract Credits – actually, this one has the potential to be very large, but only if it’s managed. Each contract you have, regardless of size or scope, will have some type performance guarantee. And if the service provider or vendor does not perform, then you are owed a credit (either in actual dollars, discounts or some other form of savings). The dirty little secret in the industry is this … you have to ask and prove you are owed the credit, the service provider or vendor doesn’t do it. Once again, you could have real money sitting with a “savings” account with your vendor, all it takes a bit of monitoring and effort to actually cash in on it.
The problem is, a budget will never tell you any of those things. Also, just looking at financial spreadsheets won’t necessarily help you find those bad dollars either. You need to have a dedicated tool that takes in more than financial or budgeting information – it has to cross over and sort through both your operational tools and service management tools. And this tool must provide the means to dig deeper. Getting rid of those bad dollars takes time, but with a little effort and disciple, it’s well worth it. Move from budget management to spend management and you can take all those bad dollars and turn them into good ones.