Tracking each and every asset within an organization can be tedious, time-consuming and nearly impossible on your own. Chief financial officers have the unenviable task of monitoring resources, determining where there are possible overages and identifying positive investments for future growth. There are three big expense management techniques that CFOs can utilize to monitor costs effectively and make savings stick.
1. Understand how to cut, not just the amount
In some cases, CFOs might concentrate more on cost reduction targets to save money and establish an achievable goal. However, as McKinsey & Company noted, the decision as to how to actually facilitate these goals is often left to individual managers, creating a disjointed cost management strategy. These leaders' choices might undermine revenue generation and damage long-term value creation.
Rather than aiming for a general number, establish policies and procedures that will help get your organization to its savings goal. These changes signal real and enduring adjustments in behavior. As the shifts set in, CFOs will likely notice a more complete expense management strategy rather than a piecemeal one with negative outcomes.
2. Consider cost management an ongoing activity
Managing expenses is a complex, intensive process, and saving costs once doesn't mean that you should stop monitoring your resources. CFOs should use initial cost reduction programs to build upon cost management in two- to three-year initiatives. This will establish long-term effective programs that will handle changing business conditions, McKinsey stated. Organizations must constantly adjust their methods based on infrastructure, personnel and other changes.
CFOs can always find ways to improve processes and cut potential costs. However, with short-term goals, it's difficult for organizations to truly create an expense management strategy that will keep up with emerging trends. As technology and business operations continue to evolve, CFOs must keep cost management top of mind as an ongoing activity.
"Monitor financial key performance indicators to fine-tune expense management strategies."
3. Monitor integral financial KPIs
Analytics provide critical insights on historical and current business conditions. CFOs must monitor financial key performance indicators to fine-tune expense management strategies and identify areas that are underperforming. CompuData suggested tracking metrics like return on equity, inventory turnover and processing errors. These KPIs, along with many others, can provide a broader picture for CFOs concerning where money is going. Reports can be broken down to payments per vendor and staff member.
Having so much information on hand will help CFOs identify services that aren't being used or are no longer valuable. Financial KPIs can also look at historical trends, allowing CFOs to recognize and rectify any discrepancies. A capable tool will provide all of this essential data and support for better expense management.
Handling costs for an organization is complex, especially as more moving parts are adding to business infrastructure. However, by monitoring KPIs, making cost management an ongoing activity and establishing how to cut expenses, CFOs can make savings stick and monitor payments more effectively. Integrating these processes into your procedures will improve your cost management strategy and yield long-term results.
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About the Author: Chantel Soumis
Chantel Soumis brings over a decade of knowledge in workflow enhancement through the use of technology. Chantel studied marketing communications and business administration at Franklin University and proceeded to work in a fast, ambitious environment, assuring client delight in the healthcare and pharmaceutical industries. Passionate about project productivity and streamlining workflows through the use of technology, Chantel strives to inform organizations of Valicom’s advanced telecom expense management software and services by mastering communications and messaging while delivering helpful information and supporting resources.