18 Jul The inordinate cost of poor spend analytics
It’s reckoned that more than 50% of businesses employ between 2 and 5 people to prepare and create procurement dashboards and spend reports. This was revealed just recently as an output to some research performed by Rosslyn Analytics but it will come as no surprise to many procurement professionals. And it’s not just the excessive time and resource that is dedicated to the collation of the numbers that is problematic, the accuracy of these dashboards and reports is often appalling.
Consider a typical example of real world spend analytics. There are multiple data sources – perhaps 3 or 4 legacy finance systems – relics of former mergers or acquisitions. In order to normalize the data – to manipulate and adapt the data so that it is all in the same shape, there may be some compromises. This is now the raw data – the starting point. It is not a great place to start. Even before the analysis has begun, approximations are already built in to data. This is like starting a journey to the moon based on rough estimates of the angle of trajectory. Things can only get worse.
And it does get worse. The rough-cut data gets put into Excel. This in itself – using Excel as an analysis tool – is not such a bad idea. But there is a problem with Excel: it is only as reliable as the user. Excel is a minefield. You don’t even need to be a bad user to get things wrong. It is very powerful and it invites you to perform very complex analyses – and it will do everything you ask of it – but you need to understand what you’re asking. Excel doesn’t demand to see your qualifications before is swings into action. Even if you are not a statistician, even if you flunked math – it will still do its stuff.
In 1998 a study by KPMG found that 91% of spreadsheets – the tools that drive business decisions – contain errors. Let’s translate that into plain English. 91% isn’t just a majority. 91% means “nearly all”. And nearly all procurement organizations are basing their decisions on analysis that is nearly always wrong.
Drawn from multiple sources of data that in itself is not accurate and compiled by people with varying levels of spreadsheet aptitude, procurement dashboards should not be taken seriously – but it’s no joke. Key commercial decisions are made on the basis of these spend analyses and the cost of the guesstimates that they generate in terms of saving missed can be in the $millions.
We’ve just published a white paper, Insight as a Service – the value of real time spend analytics. You can get it for free here.
Pete Loughlin can be found on twitter @peteloughlin