Swivel Chair Management

Why “Swivel Chair Budget Management” is Bad for Business

In Innovation and leadership, Spend management by Michael Lamoureux1 Comment

When we talk about “swivel chair management,” we are talking about a misuse of time and resources—endless swiveling in an attempt to find a solution that always seems just out of reach. “Swivel chair budget management,” then, stems from a lack of integration between budget management and an e-procurement platform, resulting in a lack of visibility and control.

Is this a problem? Simply put, yes—it’s a big problem. Without budget integration, neither requisitioners nor approvers can immediately know if an order will put an individual or department over budget, or even if there is any budget left at all. As a result, there is typically a lack of enforcement and even basic budget checking.

But why would the budget not get checked?

First of all, if there is a budget update to reference, it’s coming (at most) once a month from accounts payable (AP) based on payments made the previous month, which means that the update is out of date before it is delivered. Not only does it not contain orders from the current month, but it does not contain unpaid orders from the month before either, causing some people to wonder why they should even bother. Secondly, updates are typically featured in e-mails, online portals, or third party systems that the approver might not have immediate access to, either because the system is temporarily down or he is on the road and have to approve via mobile. Thirdly, checking the budget might seem like an onerous task because the approver has to look at last month’s report and all requisitions since then, and they just don’t have the time when an approval needs to be made quickly. Ultimately, a lack of integration and real-time availability means that the budget only gets checked once a month—after the updated AP report comes out—to see whether or not any of the budget has been exceeded.

However, with the budget integrated into an e-procurement system, all of these problems—and others—are solved. With budget integration, the approver gets to see in real time:

  • How much has been spent against the budget
  • How much has been ordered against the budget
  • How much is currently being requisitioned against the budget, but has not yet been approved
  • How quickly the budget is being depleted against the plan
  • Which budgets are affected by the requisition

With an integrated system, the approver can instantly see, for instance, that $6,000 has been spent against the $10,000 travel budget, another $2,000 is expected based on approved requisitions, and, including this requisition, there are $3,000 of unapproved requisitions in the system towards the big trade show next month. This helps the manager decide whether the projected expense is worth exceeding the budget for, especially if it’s only September and the budget is supposed to last through December. Plus, with integration, the manager can see that of the $1,500 requisition, $500 is actually for parcel delivery services to send promotional materials, which comes out of the conference budget, and that the requisition really isn’t impacting the travel budget as much as it appears to be.

Integrated budget management might be the only way a large company can effectively manage a budget cut.  As an example, let’s look at a company that had a soft sales quarter and needs to cut its indirect spend across the board by 10% immediately.  Sure, a memo can be sent out, and sure, the budget can be updated in the management system—but is it going to get updated in the e-procurement system?  The travel and expense system?  Is everyone on an approver’s indirect budget list going to get the memo, read it, or remember it?  Will they all realize that the budget hasn’t been updated in the system they are using to approve requisitions?

Probably not.

Even though a mandate may have come down from those at the top, most of the reductions aren’t going to be realized, especially with respect to budgets where the owners had spending plans in place that are being followed by subordinates.  However, with integration, the budget updates are implemented into the system immediately, meaning the approvers see the impact of the requisition on the revised budget and can act accordingly.

What’s more, budget integration with an e-procurement solution also brings with it visibility that allows the requisitioner to:

  • See availability in real time
  • See the required approval chain in real time
  • See any recommended requisitions that might meet his needs

Not only does the manager see the impact of the requisition, but the requisitioner can see the impact as it is being built. If the order is for $100 in office supplies and the budget is there, it might go through automatically. If a $2,000 laptop is added, then a manager needs to approve it, along with a representative from the IT Support department. If the requisitioner also wants a $5,000 3-D printer for prototyping, then the order may need approval from the VP and a representative from Engineering. This not only informs the requisitioner of how long an approval might take, but also provides visual guilt if he sees that not only would the requisition put him or his department over budget, but five people would also clearly see this as the order makes its way through the approval chain. The simple act of integrating budgets and presenting them in real time encourages everyone to think twice about wasting corporate money on items that aren’t really necessary for furthering the business.

Once you have budget integration in your e-procurement platform, you’ll wonder how you ever lived without it.

About the Author
Michael Lamoureux

Michael Lamoureux

Michael Lamoureux is The Doctor of Sourcing Innovation and the founder and Editor-in-Chief of the Sourcing Innovation blog, one of the longest running independent blogs on sourcing and supply management. Focused on helping current and future supply management leaders identify the issues and trends that matter, Dr. Lamoureux writes and talks about topics that matter to sourcing professionals.