How data improves cost control mechanisms
Controlling costs is a fundamental part of running a profitable business. Cost control as a process encompasses a huge range of sub-processes, activities, teams and different operational components of a business. Each of these parts of the overall cost control process is geared towards maximising potential cost savings to increase profitability.
At the centre of the entire operation lies the finance department. It’s the key piece of the puzzle that links all other departments and functions across the business together to plan, monitor and execute cost control strategies.
Each of these different moving parts of the overall cost control process plays its own important role. But without one key factor — data — most of the crucial decisions and actions that need to be taken as part of cost control would not be possible.
This includes spend data, supplier data, any kind of data which could provide insights that help a company reduce costs.
Unfortunately, many companies are under-equipped when it comes to the various different types of data that they need for cost control.
The good news is that data has never been more abundant or easier for businesses to obtain. In this article we’ll explain how data drives all sorts of cost control processes, and explain what you need to do to equip yourself with it.
The role of data in modern companies
The past decade has seen the emergence of data as one of the primary drivers of change and innovation in business. Companies in all industries now collect, share, and store data about practically every aspect of their operations.
Handling and processing this data does come with some additional challenges and costs. One of the most obvious is storage and security. Oversights here can have serious negative consequences, including theft of sensitive company and customer information.
But the benefits of relevant data for companies far outweighs these potential risks. Data has the potential to unlock all sorts of insights and process improvements that can help businesses increase efficiency, and ultimately profits.
One example is supply chain and logistics data that is now collected en masse across the entire manufacturing and production process for every type of good imaginable. This data ultimately helps businesses streamline costs and improve the quality of their products.
In fact, a 2022 survey by McKinsey revealed that 90% of companies invested in digital supply chain technology in 2021. These companies are from a whole range of industries, not just the typical logistics-heavy sectors you might expect.
But supply chain data is just the tip of the iceberg. Companies collect data in every corner of their business to drive similar efficiencies and improvements.
Data for cost control
Now, back to cost control. As we’ve already mentioned, cost control is a cross functional process that involves many different moving parts, and is enacted in many different ways.
The process begins with budgeting as the foundation for spending going forward. Budgeting is very rarely perfect, so costs have to be monitored on an ongoing basis to readjust spend in relation to project objectives and outcomes.
Retrospective analysis of actual spend versus budgeted spend then allows businesses to pinpoint where they have missed the mark and, more importantly, why.
Finally, based upon the results of budget and variance analysis, strategies can be implemented to act upon the specific causes of overspend. Some of the most common cost control mechanisms include contract renegotiation to get cheaper rates from suppliers, updating core processes, increasing operations efficiency, altering hiring strategy, etc.
Each phase of the overall cost control process is unique, and requires a different blend of input data and analysis to build relevant insights.
But one thing all of these processes have in common is a need for comprehensive, real-time financial data in order to maximise impact. Financial data, in particular spend data, is the benchmark that tells a business whether a specific decision or type of spending is good for its bottom line or not.
How do you equip yourself with the right spend data?
To get the right data, you need to have the right tools. As an example, think about what information you’d need to attract more potential customers to your company website, and make their browsing experience more enjoyable.
You’ll need various different tools to track interactions on your website, understand how visitors got there, and understand who these visitors are.
When it comes to gaining valuable insights to assist your finance team in their cost control efforts, you’ll need an equivalent solution to track budgets across multiple different levels, different payment types, cost types, cost centre, etc.
The only way to get this data, at least in the level of detail that makes real valuable insights possible, is to get it directly from the source of your spend itself.
Many businesses still use conventional business credit cards to pay suppliers and expenses. But they have some major drawbacks. Firstly, they do not provide granular information about individual spend items, budgets, or spend approvals. And, secondly, they typically only provide statements at the end of each month.
However, modern spend management solutions, like Moss, are designed to give businesses full control over exactly how their money can be spent, and track all of this spend in detail. This data can be accessed and utilised directly from one place, and passed on to other core software systems, like accounting and HR platforms.