SaaS adoption grew rapidly during the pandemic as organizations swiftly adapted to remote work arrangements, relying heavily on digital software solutions to maintain operations.
The result? A significant escalation in software spending, ranking just behind the costs of employees and office leases. In the midst of this rapid transformation, CFOs are at the epicenter of a daunting challenge: how to prevent this spend from spiraling out of control and make sure their organizations are getting the most out of their budgets.
While spend management tools exist to help companies manage spend, Nidhi Jain, Founder and CEO of CloudEagle, believes that true cost optimization resides in cultivating a culture of cost consciousness at the organization’s individual and departmental levels.
Building a cost-conscious culture is not only an imperative but a strategic advantage. It is an approach that empowers employees to be mindful of costs when making purchase decisions, ultimately leading to better resource allocation and financial stability.
In this article, we will outline practical steps, drawing from Nidhi Jain’s own experience, on how the office of the CFO can spearhead the development of a cost-conscious culture within an organization.
Educate the team on peer benchmarks
You can start by educating your team about the drawbacks of uncontrolled spending and the merits of adhering to prudent budgeting practices. Present benchmarks and show how they compare against their peers. illustrate the benefits of cost-consciousness & how others have achieved these goals.
Here’s what a department-wise breakdown of software spending looks like for typical enterprises.
The engineering department has the highest spend, whereas the marketing team has the highest number of duplicate and redundant apps. Instead of being vague, it’s crucial to provide precise data like this so the relevant departments will be mindful of how they allocate their budgets and resources.
Present visually perceivable insights like these to help CIOs and other department heads easily comprehend benchmark data and how they compare against their peers. Another interesting fact based on CloudEagle’s platform is that companies spend $1,000 to $3,500 on software tools per employee.
This spend data based on employee size and number of apps is a crucial metric for department heads to consider when hiring new employees. SaaS cost/per employee should be accounted for in addition to salaries, benefits, and office space.
Revise Intake Forms in the Pursuit of Cost-Consciousness
Intake forms are the initial touchpoint for requests or purchases within an organization. CFOs can set the tone for a cost-conscious culture by collaborating with CIOs and stakeholders and including the right questions in these forms:
Nidhi Jain often comes across customers using high-level questions like “Why do you need this tool?” in their intake forms. Get to the specifics with your questions:
- How will this application benefit our business and your specific tasks?
- Will this product continue to provide value after a year of use?
- What ROI can we anticipate from this application?
- Are there viable alternatives to this application? Have you explored our current tech stack for potential solutions?
- Does this requested application align with our budgets?
These questions facilitate a better understanding of user requirements and promote user awareness regarding their needs and whether they align with recommended budgets, effectively keeping spend in check.
Set department-specific budgets
Establish software budgets for each department. This approach compels teams to operate within their allocated budgets, gradually instilling a sense of cost-consciousness throughout the organization.
Setting department-specific budget limits is a clever alternative if you’re not particularly keen on enforcing penalties for guideline violations.
One major reason for unbudgeted spend is shadow IT and shadow purchases. Often, team members purchase unsanctioned applications using corporate credit cards. These applications might have overlapping functionalities with current sanctioned apps.
Employees start using free versions of the apps that become quickly entrenched in the company’s software stack and are hard to discontinue, which the company now has to buy. It’s important to check what is bought on credit cards and have scanners that check for shadow IT usage before the applications are too entrenched in the organization.
Additionally, Nidhi believes that setting budget limits will make departments prioritize ROI when acquiring applications rather than making purchases solely for the sake of acquisition.
Carrot and stick approach
While mandatory training sessions are valuable for educating your team and fostering a cost-conscious culture, they should not be your sole strategy.
Therefore, it’s crucial to complement these sessions with well-defined policies and associated penalties, firmly establishing the culture of cost-consciousness as a non-negotiable priority from the perspective of a CFO.
Centralize your purchasing process, establish comprehensive guidelines for its execution, and implement penalties for violations to get users to comply with the established policies.
Organizations initially establish a culture of cost-consciousness successfully, but they often struggle to sustain it over the long term. This is why utilizing policies and penalties is advisable to preserve and nurture this culture.
Cost-Conscious Culture Pays off
A culture of financial responsibility extends beyond mere cost-cutting; it’s a mindset that urges every member of an organization to exercise prudence when making spending decisions.
When employees grasp the financial consequences of their choices, it results in more efficient resource allocation, enhanced efficiency, and a collaborative drive toward financial sustainability.
Building a cost-conscious culture is a team effort, but it’s the responsibility of the office of the CFO to take the initiative and mandate the process to create a long-lasting culture.
About Nidhi Jain
Nidhi Jain, Founder and CEO of CloudEagle, with 20+ years of experience researching and negotiating with SaaS vendors at companies like Goldman Sachs, Box, Intuit, and ServiceNow, noticed how buying has moved from procurement & IT teams to individuals, what they call “citizen SaaS buyers.”
She observed that individuals, or “citizen SaaS buyers,” were buying SaaS without the approval of IT, finance, or procurement teams, and the entire buying process was broken. So, she started CloudEagle to help CIOs and CFOs have controls in place but allow the teams to choose the tools they would like to be productive – streamline SaaS buying, manage SaaS apps, and optimize their spending.