Business & Technology Nexus

Dave Stephens on technology and business trends

Budgetary Control and Encumbrance Accounting

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I had several great conversations with partners and prospects today.. A standout was a call with a higher education institution that has downloaded a copy of Coupa eProcurement to play around with & pilot. It was one of those nice open source moments where you know that making the product truly accessible had a hand in gaining the customer conversation. Good stuff.

I’ve always liked higher ed. It’s a tough nut to crack since the people that work in higher ed are so darned independent. Yet it’s great to see management soldier on in pursuit of the increased efficiency procurement provides. And let me “give a nod” to SciQuest as they’ve done some good work with major universities and their implementations seem pretty well regarded. Oracle is no slouch in the higher ed market either, selling a bunch of my old eProcurement stuff into that market.

Both firms (SciQuest and Oracle) were involved at the University of Pennsylvania for instance. UPenn went on record with a $64MM savings number for the first 5 years of operations on the combined platform. If memory serves Procuri may have been in there for reverse auctions.. But I digress..

What I’ve always loved and hated at the same time w/in public sector and private non-profits is the appraoch to budget-based buying. In concept, it’s fantastic and should be applied to many other industries – a cost center decides (or is told) how much they are authorized to spend over a given time period. It may be broken down by procurement category. Then, POs and Invoices are tracked against that spend – and it’s a hard cap.. Try and spend past your budget and you’re blocked.

This all sounds simple enough but take my word for it the requirements tended to go way overboard, including modeling spending, live feeds and interaction with GL, and overzealous ledger entries for step-by-step activities in the procure to pay flow. As a result, solutions, admittedly including Oracle’s, were terrible. Peanut brittle, so to speak. Encumbrance and budgetaey accounting bugs in Oracle’s solution typically could only be fixed by a few extremely knowledge people (you guys know who you are) and usually involved data corruption scripts and chanting Hopi prayers (okay, you get the point).

So I was encouraged, delighted, overjoyed (dancing in the streets) to see there may be a middle ground, even for some public sector organizations and non-profits where a common sense approach to budget-based procurement can win out.

My thoughts turned to other service industries that don’t typically operate on budgets – and what it would mean for them to consider adopting budget-based procurement as an approach. It’s attractive as it puts the budget holders squarely in charge of their ongoing expenses. Even large organizations like GE could benefit – as the solution they employ today is to simply “turn off” discretionary spend if the quarter’s revenue looks a little light.

So who knows, maybe budgetary control and encumbrance accounting don’t have to be all evil. It’s going to be a blast to explore this in more detail and see what a fresh sheet of paper can do for the problem.

Stay tuned…

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Written by Dave Stephens

08/28/06 11:09 PM at 11:09 pm

Posted in Coupa, Open Source, Opinion

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