THE BUSINESS CASE FOR
SPEND ANALYSIS
Spikes Cavell Analytic Inc.
Version 1.9
Spikes Cavell Analytic Inc.
151 Spring Street
Herndon
VA 20170, United States
Ph
F
E
W
(571) 313 5257
(571) 313 5218
observatory@spikescavell.com
www.spikescavell.com
HOW TO USE THIS BUSINESS CASE
Organizations who want to begin a spend analysis project sometimes have difficulty in articulating why they need
outside assistance to budget holders and decision makers within their organization. In other cases they simply don’t
have time to write their own business case. This document is designed to provide procurement professionals with
information to support them in demonstrating to their organization’s leaders that it is worth the time and money to
undertake a spend analysis project.
The text in this business case is for you to use in any way that you need to in order to create your own business case for
spend analysis. You are welcome to copy and paste all or any part of the text below “as is” directly into your own emails, presentations and memos or to modify and rearrange it to create your own business case documents. If you need
clarification or more information about any of the points below, please contact a member of Spikes Cavell’s staff and we
will be happy to assist you.
This document includes sections on:
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What is spend analysis?
What could you achieve with better data and visibility through spend analysis?
Why not do spend analysis by yourself?
Where does the data come from for spend analysis?
What are the main difficulties of the “Do It Yourself” approach?
What about auto classification?
Why you should work with Spikes Cavell
WHAT IS SPEND ANALYSIS?
The underlying rationale for a spend analysis project is to gain a clearer understanding of an organization’s expenditure
and how it might be managed better. Using detailed spend information as a basis for discussion makes it much easier to
have informed conversations with buyers and stakeholders, to influence and change behavior, and to deliver savings and
efficiencies.
Spend Analysis has two principle steps. The first step is the collection of an organization’s raw, historic expenditure data
from all available sources and the transformation of that raw data into information that the procurement team can use.
The second step is to provision of a set of tools that deliver a platform for procurement professionals to analyze and
manage their organization’s spending. Good analysis tools are important, but if the data they are analyzing is poor, the
outputs will be inaccurate which will result in wasted time and effort.
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WHAT COULD YOU ACHIEVE WITH BETTER DATA AND VISIBILITY
THROUGH SPEND ANALYSIS?
Spend analysis can help you deliver savings and efficiencies for the organization by:
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ensuring that all departments are getting the same 'best rates' and terms with each vendor;
using the data in competitive processes and supplier negotiations to strengthen the organization's information
advantage and negotiating position with suppliers;
identifying opportunities to implement or renegotiate contracts based on actual spend value rather than
estimated values or values provided by the supplier;
creating and utilizing category analysis reports to aggregate demand and drive down costs in categories of spend
that span the entire organization;
identifying opportunities for greater internal and external collaboration in procurements; and
making it easy to access spend information so that time and resources can be focused on delivering savings
rather than cleaning up data and struggling with complicated analysis tools.
Spend analysis can help you bring more of your spend under management by:
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providing a solid foundation of information for decision making which includes an aggregated view of spend
from all systems and transaction types;
identifying the key areas of spend that should be targeted by professional procurement teams;
identifying non-compliant spend, enabling procurement teams to work with buyers and suppliers to maintain a
high level of spend under contract;
profiling and managing suppliers according to levels of value, risk, and potential opportunity for savings; and
enabling the benchmarking and measurement of procurement performance over time.
Spend analysis can help you change buying behavior within the organization by:
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providing key stakeholders with visibility of spend on goods and services, going way beyond simply whether or
not spend was under or over the allocated budget;
making it easy to create and use departmental spend reports to help department managers and people with
budget responsibility more effectively manage their spend, save money, and use those savings to deliver on
their missions;
monitoring compliance against contracts, financial standing orders and procurement thresholds;
identifying non-compliant spend and deliver the management information necessary to take action and have
informed conversations with buyers and managers;
identifying suppliers with large numbers of transactions where there may be opportunities for accounts payable
efficiencies through consolidated invoicing, eProcurement or purchasing cards;
monitoring the number of transactions without purchase orders so that the procurement team can take steps to
ensure that spend goes through the proper approval processes; and
identifying opportunities for greater internal collaboration. The identification of common suppliers and
categories of expenditure across multiple departments provides valuable information for negotiating with
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suppliers to drive down prices and reducing the administration of multiple contracts, vendors and competitive
processes.
Spend analysis can help you monitor and maximize the impact of dollars spent:
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with small and medium sized business;
with local companies;
with minority owned business enterprises; and
assess the potential impact of procurement decisions on these groups.
WHERE DOES THE DATA COME FROM FOR SPEND ANALYIS?
Most organizations have a huge volume of data about their spend, held in a variety of systems designed to support a
specific transaction stage or process. These systems typically produce the following types of data:
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Accounts payable data: This type of data provides the broadest view of what has been spent with each supplier,
but the only data available to determine what the money has actually been spent on is the organization’s own
financial codes. Classification is frequently performed by the buyers making the purchase who are not subject
matter experts, nor is there often enough of a carrot or stick to encourage them to take their time and code
transactions correctly. This often results in classification errors, particularly where purchasing authority is
decentralized, and which makes accurate analysis of spend difficult.
eProcurement data: eProcurement systems can be very useful, but seldom provide a comprehensive view of all
spend; only the 10-20% of total expenditure that actually goes through that system. Data captured in an
eProcurement system is usually more detailed than accounts payable data, especially if transactions are driven
through catalogs. Where catalog items are classified to a standard taxonomy such as NIGP Code, this provides a
more consistent base for analysis. One issue to be aware of is that, in many cases, these implementations rely
on the supplier to append the correct classification code. Most suppliers are not classification specialists which
can lead to errors in classification of catalog items.
Purchase card data: Purchasing card transactions are typically classified to a merchant category code, which
often does not match the coding in the accounts payable or eProcurement systems, if the transactions are
classified at all. In categories like travel, it is common for an organization to complete smaller value transactions
using a PCard and with the same supplier also receive invoices to accounts payable for larger transactions. With
transaction data coming in from different sources, in different formats, and sometimes with different names for
the same vendor, it can be difficult to get full visibility of spend with a single supplier across two transaction
methods.
Contract data: Information about the contracts an organization has in place usually resides in a separate
contract management system, if contract data is systematically recorded and kept up to date in an electronic
format at all. Matching lists of contracted suppliers to expenditure data is often carried out manually and only
for those suppliers and contracts with higher spend values. The matching of suppliers and spend to contracts is
instrumental in identifying maverick expenditure.
Due to the complexity and volume of expenditure data from all of these sources, reviewing spend with a single vendor,
spend in a particular category, or understanding how much was spent through a single contract can take hours or days
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of administrative effort. The sheer volume of data being analyzed can take hours to process using industry standard, off
the shelf applications. Certain attributes of the data itself will make analysis difficult. For example, there are likely to be
many different names for the same vendor that exist in different systems (AT&T, ATT, AT & T Wireless, A.T.T., ATTM) as
well as inconsistently applied item or vendor classifications (Office Supplies, Stationery, Other Office Equipment and
Retail Stores all used to describe the same vendor or commodity) which make it difficult to analyze the data without
spending a significant amount of time cleaning it up first. With cleansed, classified and aggregated data and quality
business intelligence tools, analysis should take minutes.
WHY NOT DO SPEND ANALYSIS BY YOURSELF?
Public sector and higher education organizations frequently struggle with step one of the spend analysis process;
transforming raw expenditure data into information that is fit for purpose. Many procurement teams do not have the
necessary staff, resources, skills or suitable technology to undertake the data aggregation, cleansing and classification
work that’s needed just to get the data in the right shape to analyze.
Even if the data is in good shape and it is possible to extract it in a usable format, most procurement teams do not have
skilled data analysts, easy to use analytical tools, or the facility to easily distribute the information to the business
managers and operational staff that need it.
WHAT ARE THE MAIN DIFFICULTIES OF THE “DO IT YOURSELF”
APPROACH?
It is not unreasonable to assume that it should be possible to analyze spend data using internal resources. However,
there are some things to consider before going down that road:
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When transaction data is extracted from the accounts payable, eProcurement and PCard systems, it is often
provided to users in a very raw state and in multiple files. The procurement team who need to use the data are
not usually data analysts, so getting what they need from the data in its raw state is just too difficult or too timeconsuming.
Assuming that the resources are available to extract data from these multiple systems so that it is available for
analysis projects, in its raw state, the data requires significant time, staff resources and database skills to
aggregate, cleanse and classify the data before it is in a usable state. De-duplication of vendors across multiple
files and classification of vendors and spend are both time consuming and difficult to complete consistently and
accurately, but are essential if the data is to be fit for purpose.
Internally developed business intelligence solutions are often difficult to distribute access to and support end
users beyond a very limited audience. These difficulties mean that either the information is severely underutilized, or an extra internal team of analysts is needed to respond to specific requests for information. Quite
often, the key stakeholders and senior executives who really need the management information never get to
see it.
Working in collaborative groups or comparing expenditure to other organizations brings additional challenges
because data needs to be gathered and aggregated across those organizations. Aggregation, cleansing and
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classification of multiple datasets together just multiplies the difficulties an individual organization faces in
getting better spend visibility.
WHAT ABOUT AUTO CLASSIFICATION?
There are providers of business intelligence tools that claim to have artificial intelligence based auto-classification
processes built in. Software-based solutions often result in hidden costs which make the solution appear less expensive
at the initial outlay. This is because the time and resources required to set up, teach and maintain the auto-classification
tool end up with the customer. Here are some points to consider about auto cleansing and classification processes if
you’re thinking about using them:
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Auto cleansing and classification is based on a set of business rules that recognize a text string. Most tools will
come with a set of pre-built business rules based on a reference database of historical datasets that have been
previously processed. Where classification or cleansing is not achieved, it is usually the responsibility of the
customer to define and write the additional business rules that will allow the system to improve the accuracy of
the information. This only works if the skilled resources exist in your organization and are available when you
need them.
Auto classification of line level data depends entirely upon the free-text descriptions and internal line level
classifications held in the buying organization’s source data. If the descriptions or coding are ambiguous or
incorrect, it is usually the responsibility of the customer to correct the errors. Again this can be a viable
approach if the skilled resources are available internally, or if the underlying data is high quality and complete.
Automated matching to external databases to enhance supplier records alone usually only achieves up to 60%
match rate accuracy. If no manual validation is offered, it is the responsibility of the customer to classify the
remaining suppliers.
WHY YOU SHOULD WORK WITH SPIKES CAVELL
Since 2003, Spikes Cavell has processed more public sector and higher education datasets in the UK and US than any
other service provider. We have accumulated an unrivalled body of real-world experience working with individual
organizations as well groups of over 160 separate buying entities.
Spikes Cavell specializes in this area because there is a real need for high quality and consistent data cleansing and
transformation, pre-configured reporting tools that don’t take months to customize and learn, and the computing
power to process and display large volumes of data quickly. Spikes Cavell can solve both your data and reporting
challenges faster, cheaper and better than using in-house resources.
Spikes Cavell has developed sophisticated de-duplication, matching and auto-classification processes which don’t
require the customer’s time and resources to deliver high quality results. Where a computer rule can identify a match or
recognize a specific text string, the match makes the process of classification repeatable, quicker to do and more cost
effective. However we know that without human involvement, the data will never be fit for purpose and that our
customers don’t usually have the time or staff to manually validate classifications and teach the system. Because our
primary focus is on delivering high quality data, low confidence matches are manually validated by Spikes Cavell
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classification experts at each stage of the data cleansing and enhancement process and these analysts make pragmatic
decisions that no computer rule could replicate.
Transformation of the data is done for you by an experienced team:
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Transformation of your financial data is handled by a team that has processed expenditure data for over 1,000
other public sector organizations before yours. Your data is put through a standardized data cleansing and
classification process, conducted by experienced data analyst who have handled over 3,000 other public sector
and higher education financial data extracts.
Data Fitness Checks:
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Your expenditure data is systematically aggregated from multiple source systems, checked for over 350 types of
possible data corruptions, omissions and other issues that could affect your analysis, and those data issues are
fixed by Spikes Cavell with minimum impact on you. This attention to detail and the Data Fitness Check process
gives you the confidence that the data you ultimately use for analysis will be a true and accurate reflection of
spend on goods and services. We are the only vendor to carry out this level of data fitness checking prior to data
publication with minimal impact on the customer.
Flexible and Low Touch
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Spikes Cavell’s services are completely independent of your ERP, Accounts Payable, eProcurement or Purchasing
Card system. As long as your organization can extract a transaction history in Excel, Access or .CSV format, we
can use it. There’s no special software to install, no lengthy and expensive technical integrations, and you may
not even need to involve your IT team unless they are the people who have to extract the data. It takes the
average customer between 8 and 16 hours to extract their data, respond to the Data Fitness Check, and sign off.
The rest is handled by Spikes Cavell.
Meaningful classification and public sector specific taxonomy
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Using only the vendor’s name and address as input, a vCode vendor classification is applied to at least 97% by
value of your organization’s expenditure and manually validated by a team of data analysts. This provides a
proxy for what has been bought, which is clear and consistent across spend with all suppliers, regardless of how
unreliable the organization’s own line level descriptions or cost coding may be.
vCode is a classification taxonomy developed by Spikes Cavell exclusively for the classification of suppliers to the
public sector and higher education organizations and is based on over 11 years and $550 billion of spend
classified for the public and higher education sectors, input from procurement category experts and review of all
other available taxonomies.
Know more about your suppliers
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Understanding more about the type, size and location of suppliers is often important to public sector and higher
education organizations as many are expected to consider the impact on the local economy or small businesses
of their procurement decisions. As part of the supplier data enhancement process, Spikes Cavell also enriches
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supplier records for each dataset with company size and location, where it is possible to achieve a match to
external sources of company data.
Joining Contract and Expenditure Data
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Your expenditure data and information about the contracts your organization has in place are likely in two
separate databases and not joined together. Spikes Cavell can combine the transformed expenditure data with
your contract data to give an unprecedented view of off–contract expenditure. We make it easy for you to
identify categories of non-compliant spend and bring more of your spend under management. You can easily
see where the spend is occurring with suppliers where no contract has been negotiated and who in the
organization is spending with them. We also provide the capability for organizations to share their summary
contract information with each other through this tool, including State and Government Purchasing
Organization contracts.
Analytical Tools Built for Business Users
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You need easy to use analytical tools that were built for business users, not analysts that are easy to learn and
use. Spikes Cavell’s Observatory has been used by public sector procurement, finance and development
personnel for 11 years. We regularly consult our user base for ideas for new reports and functions which (once
approved) are built into the Observatory by our in-house development team. The applications are designed to
help a wide audience of business users to be self-sufficient in getting the management information they need
quickly and easily. Over 200 reports have been pre-built to help you get management information that informs
business outcomes quickly. This means that valuable and well-presented spend management information is
accessible directly by the business user in minutes without the need to request reports from either the financial
systems team or from a data analyst.
Experienced in Working with Groups of Multiple Organizations
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Spikes Cavell has built a reputation in the market as a specialist in managing multi-organization spend analysis
projects. When working in collaborative procurement groups of any size, you need help managing the process
in order to ensure success. Spikes Cavell manages the data gathering process for your group, engages directly
with business sponsors and technical resources at each organization and provides an explanation and
demonstration of what the data will be used for. Following the transformation of your data, we deliver support
and training to users to ensure that all group members and any central coordinating organization get the most
out of the project. The level of service we provide to organizations throughout a spend analysis project is
unrivalled and is the reason we have been successful at completing many large group spend analysis projects.
No other spend analytics provider has carried out a spend analysis project of the size and complexity of all public
bodies in an entire country as Spikes Cavell has done for the Scottish Government.
Compare and Collaborate With Other Organizations
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Once you have clear visibility over where your own organization’s money is being spent, it’s natural to wonder
how your spend compares with other organizations. There may also be opportunities to collaborate with other
nearby organizations in order to reduce prices and duplication of procurement effort. Spikes Cavell is the only
spend analysis provider that has built its data transformation services with public sector procurement
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collaboration in mind from the beginning. You are able to compare your expenditure to, or look for
collaborative procurement opportunities with, any other Spikes Cavell customer from day one.
Recording and Reporting Your Achievements
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Recording and reporting the value that your procurement team brings to your organization can be almost as
important as actually delivering savings. Being able to present evidence of the value of the procurement
function to senior managers in universally understood 'dollars and cents' language, means that your department
is more likely to get the resources it needs to operate most efficiently in the future. Spikes Cavell is the only
spend analysis provider that also equips you with a tool for quickly and efficiently recording and reporting the
value that procurement teams deliver to their organizations every day.
Partnerships
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Spikes Cavell is the only spend analytics provider to have strategic alliances with the two primary public and
higher education sector procurement professional organizations – the National Institute of Governmental
Procurement and the National Association of Educational Procurement. These are not traditional marketing or
sponsorship arrangements – Spikes Cavell provides education sessions, thought leadership publications and
support of strategic initiatives to promote the profession through each of these organizations.
Contracts Available
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Our fees are set to make our services affordable to organizations of any size, and fall below many organization’s
competitive procurement thresholds. If this is not the case, or you would prefer to utilize a cooperative
contract, our services are available through Insight Public Sector (who is a US Communities contract holder) or
directly with Spikes Cavell through the E&I Cooperative contract #CNR01319.
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