Budgets to Manage Spend with Procurement Solutions

Spend Analytics to Protect Spend

A new study shows that expiring budgets meant to manage spend could actually lead to wasted spend at the end of each fiscal year. Because many budgets are tied to a time period with a “use-it-or-lose-it” program, purchasers tend to rush spending at the end of the year, often on low-quality purchases.

Researchers used data from the U.S. Government and found that spending was 4.9 times higher in the last week of the year than the rest of the year’s average weekly spend. This poor budget strategy can become very expensive, not only in the unnecessary spending, but also in poor quality expenditures.

How can you fix wasteful year-end spend in your own organization?

Prepare well before the end of the year and create different incentives. If your current system motivates and rewards year-end wasteful spending, the issue will continue. Creating a new policy that allows for some rollover budget will relieve purchasers from the pressure of making the most of all of their budget. This will also encourage better quality spending.

This study appears to be the first of its kind and highlights an important issue that is likely often overlooked in purchasing organizations. Spend analytics can help bring these issues to light. Learn more about Vroozi Spend Analytics with a live P2P software demo by registering online here.

Follow us on LinkedInTwitter and Instagram.

Source: American Economic Review 2017, 107(11): 3510–3549