In era of tight capex, can contract management be the CFO’s friend?
Of all the titles this economic era as been tough on, pity the CFO.
Not only have CFOs had to deal with an era of seemingly never ending belt-tightening (cutting budget is never a fun conversation with a department head), but increased regulation and sheer uncertainty make the CFO’s job harder too.
The value that a good CFO brings to a company is often the ability to see “behind the numbers” to find out what’s truly profitable, or where hidden black holes of budget-busting practices lurk. Every year many companies look for a way to eek more out of tight budgets, sometimes with capital expenditures that promise future efficiencies and profits.
It’s not a good era for capex, however. A recent article on www.cfo.com reports that credit rating agency Count Fitch Ratings sees “moderate expansionary capex, tight liquidity management and a continued focus on cost containment in an effort to conserve cash.”
Not exactly a forecast to make everyone order champagne and crank up “Happy Days Are Here Again” on the old Victrola. (And if you know what a Victrola is, you’re probably old enough to remember the last age of unfettered capex spending).
Overhead challenges are always a significant era of concern for CFOs, too. An article on the www.exectuiveboard.com site mentioned that consulting firm CEB has identified four overhead challenges facing CFOs: assessing services beyond cost; rightsizing discretionary spend projects; comparing costs across functions; and handling objections to budget cuts.
A modest proposal
So we have to ask a simple question of any CFO out there: have you considered the benefit of implementing a contract management solution to help squeeze efficiencies out of company budgets?
It may help in an era of tight liquidity and stingy capex to get more from operational expenses. Good contract management practices are estimated by the International Association for Contract and Commercial Management to save companies anywhere from 5 percent to 9 percent of revenue. Even at half of 5 percent (or a quarter!) you are probably talking about a lot of money, especially in larger enterprises.
Contract management solutions can help CFOs look at vendor costs in new ways, and may even help to find valuable cost savings.
For instance, as noted by the CEB, one of the main concerns of CFOs is comparing costs across functions. Looking at the value of service contracts across functions would be a key way to accomplish that task.The larger the company, the more likely you’ll find many different service providers for the same job spread out among different offices and locations. Who offers the best price for that service – and would it be feasible to ask that vendor to service more business?
With a contract management solution, you have a database of information you can review. If your organization takes the time to complete financial information on contract database records, eventually users would be able to examine and compare this data over time and among different vendors.
Now consider the issue of “rightsizing” discretionary spend projects. Here, too, a contract management solution could provide useful information. What vendors or solution providers were hired to fulfill a discretionary spend project? Can you compare the cost and services offered among different providers? With a contract management solution, the answer might be found after a few simple searches.
When it comes to assessing services beyond cost, a contract management solution could help as well. When seeking out qualitative information, you need the input of key stakeholders. If contract records are filled out completely with contact information, you have a ready-made list of stakeholders to query about the quality of vendors’ services.
Used in these ways, CFOs might find contract management software a valuable tool in tackling issues related to overhead and operational costs. That, in turn, might result in just a little more breathing room for budgets of all kinds.
And anything to make the CFO’s job easier in the era of tight budgets and low capex spending is a good thing.
[About the author: Todd Hyten is a former business journalist who now writes about B2B topics and consults on content marketing. You can find him on Twitter and Google+.]