Why Effective Expense Management Is Essential in the Modern Organisation

//Why Effective Expense Management Is Essential in the Modern Organisation

The only way for an organization to remain profitable in the increasingly competitive global environment is to effectively control expenditure. While the focus of most business executives is growing revenues, it has been proven that cost control is just as important in ensuring the success of a business. CFO’s in the current cut throat business environment have their work cut out when making decisions concerning operating expenses. Under intense pressure from shareholders demanding higher profits, many firms are operating on shoestring budgets often at the expense of core business operations. A trade-off between cost cutting and ensuring core business functions are not compromised while satisfying stakeholder needs is therefore a major challenge for today’s business executive.

Expense management refers to all the laid down procedures through which organizations analyse, deny or accept and process expense claims made by employees. The major role of expense management is to keep the operating costs of a business at a manageable level without hurting core business operations. The resources employed within a project must enable it achieve its revenue projections while minimizing the costs associated with it. Undesirable projects whose projected cost of implementation exceeds the expected profits should be thoroughly audited to determine whether its negative outlook can be overturned with the elimination of unessential costs. If not the project should simply be discarded. Modern resource management software is playing a crucial role in determining optimal project costs in modern firms.

The first step in coming up with an effective expense management technique is to carry out a thorough analysis of all costs associated with business projects. Needless to say, the costs associated with implementing the project must be significantly lower than the revenues it will generate. To maximize revenue inflows from the project, the cost control mechanism should then excise all non-essential costs associated with it. Manual claims made by employees using paper based means are unfortunately prone to manipulation. It is instructive for business executives to note that fraud committed internally by employees through fishy claims amounts to 40% of costs. It is literally impossible to eliminate this type of fraud mainly due to the sheer volume of work needed to audit and uncover these attempts. Customized resource management software however comes with inbuilt modules that automate and speeds up the process of expense claims while closing any loopholes that may lead to fraud.

It is critical for the modern business to implement strong and adequate cost control techniques if they are to survive in the harsh business world of the 21st century. In order for CFO’s and other executives to properly design and implement expense management strategies, they need to be aware of what to look out for. The basic rule is usually to cut out any unnecessary expenditure but as most executives have discovered, determining the same is not exactly a walk in the park. For instance, it is a well-known fact that most operations within an organization are intertwined in one way or another. Making a hasty decision to discontinue a business operation on the grounds that is does not directly contribute to the business’s revenue stream can have far-reaching adverse effects on overall performance. An effective expense control strategy must therefore begin with an in-depth analysis of all costs, correlate both core and non-core functions before categorically stating what the business can and cannot do without.

Source by David Hog