Financial Savings Management

Definition

Financial savings management refers to the process of forecasting savings based on tracking, careful planning, and mapping those savings. A detailed image of finances helps in strategizing accordingly. This helps businesses in limiting spending and obtaining savings.

Financial savings management in procurement includes all actions that entail predicting savings based on strategic sourcing plans, projecting savings to the budget, and monitoring realized savings. Financial savings management also provides a clear view of your money and function-specific savings projects.

How to Measure the Value of Procurement Savings?

The main goal of procurement is to buy goods and services at the best possible price. For most Chief Procurement Officers (CPOs), measuring cost savings is the key way to track performance. These savings can come in two forms: through hard savings, which are real cost reductions, and cost avoidance, which means preventing future costs.

However, finance and procurement teams are confused about how to measure these savings. There isn’t a single correct method, but what matters most is having transparency, alignment with the finance team, and clear proof of the value procurement brings to the business.

Without a prior cost reference, savings could be estimated using the first offer received or market benchmarks. Procurement teams can sit back and hand over the contract to the business for implementation when they want to record savings during the negotiation process or after an agreement has been confirmed and assigned. This alerts us to the possibility of savings, but it does not translate into actual financial savings.

Where to Find the Opportunities for Cost Savings?

The key to effective procurement is focusing resources on initiatives that deliver the greatest value while looking for ways to reduce costs. Spend analysis helps uncover potential areas for future savings.

Information below about a particular product or service can reveal where savings or discounts might be found.

1. Recurring expenses
2. Total Number of suppliers
3. Amount spent on each supplier
4. Spending by division
5. Comparisons to the chosen benchmark
6. Spend consolidation can be achieved by leveraging bulk discounts and reducing the number of suppliers. Re-specification, which is adjusting product or service requirements, can further enhance cost-effectiveness. Another often overlooked yet valuable approach is to collaborate openly with key suppliers, fostering transparency and cooperation so that both parties can share in the resulting savings and mutual benefits.