IT Tail Spend: It’s The Small Purchases That Undercut Your Bottom Line…
Do you know what tail spend is, and how it’s affecting your IT budget? If you intend to maximize your ROI for IT, you need to understand how to mitigate tail spend.
Are you sure your IT budget is optimized?
A valuable indicator is whether or not you’ve done anything to address “tail spend”. Do you know what it is, and how it affects your ROI?
This is just one critical financial concept explored by our associates at Expense Reduction Analysts, well in line with our mission to reduce our clients’ expenses on an ongoing basis.
The Envizion team engages in a continuous assessment and reassessment of client IT expenses, which allows us to find new opportunities for cost reduction. This includes examining and addressing your IT tail spend to ensure you get more value out of every dollar you commit to IT.
What Is Tail Spend?
Tail spend is the roughly 20% of your non-core procurement transactions that are otherwise unmanaged as a result of a high volume of suppliers and limited in-house resources.
Essentially, tail spend is the 80% of transactions that account for only 20% of your spending. These purchases are rare and inconsistent in frequency, which, when combined with their low value, makes them difficult to track.
These transactions can consist of thousands of different minor expenses, from small replacement parts to cabling and more. While you can easily track the major purchases you make, such as new computers, servers, and large-scale projects, it’s these smaller costs that are more difficult to track.
Why Is Tail Spend Difficult To Manage?
There is a range of reasons why tail spend can be difficult to track, address and mitigate:
- Lack of expertise: If you’re going to understand where your tail spend is, you need to have a keen understanding of the IT world’s cost drivers, market influences, and more.
- Visibility and intelligence: The smaller the purchase is, the less data there tends to be on it, which is only exacerbated by the fact that you likely have no benchmark to compare these expenses against.
- Complexity: Your spending is likely fragmented between more suppliers than is necessary, which makes it all the more difficult to analyze and reduce.
- Resources and mandates: Tracking tail spend takes time, which, in the business world, costs money. If you can’t get your C-Level suite to sign off on the time it would take to gather the necessary data and formulate a plan, you won’t be able to do much about tail spend.
It is for all these reasons that tail spend remains a largely hidden challenge. In order to do something about it, you must first understand what it is, and then develop a plan to deal with it.
Best Practices For Addressing Tail Spend
As mentioned above, your first step is to ensure you can commit the necessary resources to this task. Your financial department or accounting team will need to work together with whoever handles your IT to carefully track your expenses.
Once you are ready, you can begin by evaluating spending by both supplier and expense category to determine where your strategically managed purchases are, and where your tail spend is. The more granular you can get in terms of suppliers and products, the better.
You can then take that data and carefully detail how much you spend on these minor transactions, categorizing them both by the type of expense and the supplier with which you make the transaction. Examined at a macro level, you can then plan ahead to bulk order these types of products that would otherwise be purchased on an ad-hoc, inconsistent basis.
This data will provide valuable insight for your CFO in the budgeting process, informing a far more superior spending strategy than a simple line-by-line budget would. With this information, your business can methodically shorten the tail spend, and make better use of the freed-up purchasing power.
We Will Help You Eliminate Your IT Tail Spend
Not sure where to begin with your tail spend? We can help—reducing our clients’ expenses is our specialty.
Either by changing software license structures, switching service vendors, or otherwise, we help clients achieve massive savings in their IT budgets. We can help you gain visibility into and control over your tail spend.
The Envizion team uses continual improvement methodologies, such as IT planning and strategy meetings, permanent corrective actions, and much more, to act as your architects of cost-effectiveness.
Get in touch with our team to get started today.
Thanks to Ashu with Orion Networks in Columbia, MD for his help with this article.
