When discussing ways to improve your organization’s internal spend controls, it is helpful to take a holistic look at your spend program as a whole to identify areas for improvement. Often, we find that organizations can make significant progress just by getting a better hold of their spend data. The data is there, it’s just not being utilized correctly. It can be disorganized, fragmented, contain errors or other problems, or be otherwise raw, unstructured, and presented in inconsistent formats. And the larger the organization is, the issues only compound. The good news is that spend data visibility and transparency can be improved with the proper controls, processes, and technology.
Defining Terms
Before we can diagnose the specific problem, it is imperative to get our terms right. Data visibility and data transparency are often used interchangeably. While they are certainly related, their meanings are a little bit different.
Spend Data Visibility
Spend data visibility refers to the overarching ability of your finance team to see precisely where money is being allocated. Seems simple enough, right? It’s easier said than done. Data visibility is jeopardized by several common organizational issues, like:
- Communication breakdowns and organizational silos
- Mismanaged data and outdated systems
- Multiple data sources
As an example, an overreliance on MCCs can lead to visibility issues. MCCs, or merchant category codes, are notorious for being unreliable or straight up incorrect. Check out our blog post linked above for a more in-depth discussion on MCCs and how they can impact your spend program.
Spend Data Transparency
Data transparency has a distinct meaning, even if it is often used interchangeably with visibility. The National Institute of Governmental Purchasing (NIGP) defines transparency as “The quality of being open and honest. In ethics, the belief that the more information is disclosed, the better”. Since we’re talking about data transparency specifically, we can extrapolate that definition to mean “data that is presented in a way that allows for clarity and understanding”. To put it simply, spend data visibility is the “what”, and spend data transparency is the “why” or “how”.
The term “transparency” in finance often deals with ethics, as seen in NIGP’s definition. For example, we think of a public agency being “transparent” with its taxpayers and providing information as a matter of public record as a method of being intentionally candid. But when dealing with data, poor data transparency is often unintentional. That being said, making a conscious effort to compile, cleanse, and present data in a way that is easy to understand is certainly quite ethical.
Seeing Versus Understanding
Spend data visibility should answer the question “can I see the data accurately and clearly”? Transparency helps organizations understand the data. It is an essential tool to draw informed conclusions, make decisions, and provide guidance for forecasting. It answers the question “what insights can I gather from the data”?
When you get the answers to these questions, you can begin to make strategic considerations to not just ensure that your data is gathered and communicated effectively, but to turn that data into actionable insights. For example, you should be able to easily break down your spend by category, set limits for certain categories, and determine which categories need to be sourced. Proper visibility over category spend lets you align purchasing with organizational objectives and identify opportunities to save costs.
Similar logic applies to supplier spend. Being able to see your true spend with different supplies lets you manage supplier relationships more effectively, and allows for improved segmentation among your supplier networks.
It’s through these considerations that the difference between spend data visibility and spend data transparency is best illustrated. It’s important to see what’s going on with your spend, but it’s equally important to understand why you’re seeing what you’re seeing. If your data is unorganized and difficult to glean anything out of, it’s a data visibility problem. If you’re looking at your data and have trouble answering “why is this the way that it is” or “how can I use this to drive organizational objectives”, it’s more of a transparency problem.
Shining a Light on Spend Data Visibility and Transparency
Through nearly 20 years of working with organizations across all industries — from higher education to municipalities to Fortune 500 corporations — we have identified several best practices for achieving strong spend data visibility and transparency. That’s why we published a free eGuide, Shining a Light on Spend Data Visibility. The eGuide discusses these issues of visibility and transparency in depth, and includes information on:
- Discussion on the causes and risks of poor spend data visibility and transparency
- Organizing and categorizing data effectively
- Handling multiple data sources
- Merchant category codes (MCCs) and Level 3 card data
- Strategic considerations
- Compliance considerations
- Navigating budget restraints and staff shortages
- Hidden fraud and policy violations
…and much, much more. After all, when it comes to spend data visibility… you really do have to see it to believe it! Check out the free eGuide below!
