Today, Technology is available to make nearly any business process run smoothly and efficiently. But with so many options, your company might be over-spending on software, applications, and other systems. Technology expense management, or TEM, helps your business employ technology more efficiently and reduce operating expenses. 

To ensure you are not wasting money, review these systems to optimize them for your company. Streamlining technology expenses can help you invest your resources wisely.

Introduction to Technology Expense Management

Technology expense management is a process that allows companies to fully manage and optimize their technology costs by tracking and reviewing items such as invoices, contracts, and data usage.

By carefully reviewing this information, companies can gain visibility into their technology expenses and determine if they are using their budgets effectively. TEM helps eliminate redundancies, streamline systems, and determine which technology is ineffective or unused.

Some critical activities involved in TEM include:

• Auditing for tech-related billing and expenses, including phone and internet services, software application fees, cloud-based service costs, and hardware.
• Negotiating or renegotiating vendor contracts. 
• Reviewing expenses regularly and when company-wide changes occur, such as growth or downsizing.
• Determining whether existing services meet your current needs.
• Discovering outdated requirements.
• Putting effective cost control measures into place for technology by reviewing past budgets and comparing them to actual expenses. 
• Addressing any variances and planning corrective measures.
• Changing, revamping, or eliminating your company’s existing technology investments to ensure services are effective.

Investing in this process can streamline your company, putting you ahead of your competition.

Importance of Technology Expense Management

Technology expense management is important because,  no matter the size of your firm, this process can help your business. Once completed, departments and managers will be better able to strategically allocate resources to save on technology expenses and be more financially efficient. 

Companies that implement technology expense management have discovered these benefits:

• Many firms average a 15% reduction in IT expenses by removing outdated systems or applications. 
• Technology expense management boosts productivity and efficiency across departments.
• Nearly 90% of businesses find billing errors that TEM can reduce or eliminate.
• Automated TEM systems save companies an annual average of $400,000. 
• TEM can increase profit margins by up to 20%.

Implementing technology expense management is well worth the time and effort to create that kind of additional revenue. What sort of expenses are most companies investing in, and how can they better manage those investments?

Types of Technology Expenses

Research from Insider Intelligence shows that organizations spend more than 5% of their revenue on technology expenses. Corporate leaders benefit by regarding these costs as technology investments. 

However, there seems to be a disconnect between what corporate leaders want from these investments and how that money is invested. Over 70% of executive-level managers consider tech that creates revenue or innovations the most appealing. However, over half the budget of most IT departments is spent on system maintenance.

To address this issue, review all the costs that your technology might incur, especially as the business scales. According to Endsight, some technology expenses that are critical to document include: 

• Connectivity services such as cloud, internet, and phone. 
• IT department management and staffing. This includes both permanent staff and temporary contractors for special projects.
• Equipment, such as servers, laptops, PCs, and smartphones, plus updates, upgrades, and maintenance services and contracts.
• Software licensing fees, subscriptions, warranties, and maintenance costs.
• Security systems include cybersecurity programs, backup systems, disaster recovery, and physical systems that protect your facilities, such as access control or surveillance devices. This category also includes the amount spent on training staff on measures like data security protocols.
• Specialized systems relevant to your company’s industry, such as warehouse systems.

Technology expense management should address contingencies for specialized requirements, such as compliance, growth, change in business model, or corporate mergers. 

Cost Optimization Strategies

Cost optimization is a necessary part of technology expense management that helps you retain your profit margins. Managers should consider how a shift in technology services can streamline your business. For example, after the pandemic, many companies adapted how they used technology to continue operations even when employees could not come into the office. 

Replacing outdated or high-maintenance systems can reduce technology expenses. Your company could replace existing hosting services with on-demand services or replace in-house software with cloud-based options.

You can also use technology to update your payment systems. For example, small businesses should choose credit card processing companies that offer alternative payment options such as digital wallets, cryptocurrency, or QR codes. By offering more flexibility to customers, your company will stand out from the competition when you find a solution that is affordable, secure, and reliable.

Switching credit card processing vendors is an easy way for your firm to save on processing fees. These fees fluctuate, impeding your ability to estimate expenses. By selecting a vendor that offers flat rates rather than fluctuating monthly pricing, you can easily budget for this expense.   

Budgeting and Financial Planning

Once you’ve reviewed these options, it’s time to set up your budget and take steps toward planning for the next year or more. You can do so by determining future technology needs by using a method suggested by Chron. 

1. Start by reviewing prior budgets and how they compare to actual costs. 
2. Consider any changes that will impact your expenses. If your staff has grown by 30%, your technology needs and expenses will grow alongside that.
3. If you’ve determined areas where you can reduce costs, add those savings to your budget. 
4. Take into account potential future growth trends by looking at growth rates over the last few years. If you expect to scale due to a merger, acquisition, or new business model or services, get with your team to estimate that growth rate.
5. If you are reconsidering or revamping your current systems, you’ll need to estimate a budget for the upfront costs of this endeavor.
6. If needed, you can cover extra expenses with the appropriate type of loan. Business options include fixed-term loans, adaptable business lines of credit, and invoice-backed financing. This last type allows companies to borrow against outstanding invoices, which keeps cash flow consistent. 

Factor in all these items as you develop your TEM plan and record data. While spreadsheets have their place, robust tools exist to make this process seamless.

Expense Tracking and Reporting Tools

Remember that the technology you use for your business is an investment that makes your company more productive, efficient, and profitable in the long run. Part of your TEM plan should be integrating technology that helps reduce business expenses. 

For example, advanced inventory management systems help you to track product journeys in real time, including destination routes, travel mileage, and storage information. This technology optimizes the process to help save money and properly allocate resources, helping to reduce fuel costs, expedite delivery times, and eliminate expired product delivery. 

Some other examples of tools your company could benefit from using include: 

• Financial management tools.

These will be the most critical tools in your technology expense management arsenal. By simplifying your ability to track expenses, you can ensure that your projects stay on budget, more easily forecast future budgets, and ensure that you are investing wisely to maximize productivity. 

• Project management tools.

These tools ensure that projects stay on time and within budget. They help you allocate resources. You can track milestones, gauge deadlines, and assess risks for your project. 

• Task automation tools.

These help reduce human error. 

• Inventory management systems. 

This software helps you track products from the warehouse to the store floor. They allow you to simplify your processes and optimize product shipping, storage costs, and barcoding.  

• Manufacturing management systems. 

Manufacturing systems help you track and troubleshoot research, design, and production, saving you time and money and allowing you to streamline your supply chain. 

• Customer relationship management programs (CRMs).

Keeping track of your customers is crucial, especially as your client base grows. A CRM can help you track touchpoints, like emails and texts, demographics, purchasing habits, and other relevant information, allowing you to design effective and personalized marketing campaigns.

There are a variety of B2B companies that offer these tools, and many offer promotions that can help your company save even more money. Switching to a new system at the right time can be a good option for this reason. 

Vendor Management and Negotiation

Some companies believe that vendor contracts are a “one-and-done” effort. However, reviewing terms, costs, and other elements can highlight issues such as services that are no longer necessary or extraneous fees. 

Additionally, new vendors frequently enter the market and may offer more competitive rates, new sign-up incentives, or services that are a better fit for where your company is today. Reviewing these options can help streamline the systems in your business.

Finding the Best New Vendors

If you are looking for a new vendor, they should fit your plans for future growth and expansion. Besides cost, you should also consider:

• Terms and length of contract;
• Standard options; 
• Customized solutions;
• Length of time they’ve been in business;
• Reviews from prior clients;
• Online reviews;
• Warranty options;
• Pricing and payment options.

Reliability is always a concern with a new vendor, so be sure to do your due diligence on them to discover if they have had any significant issues in the past.

Another way to research potential new vendors is to find listings of the best companies. This type of review can help you discover the cream of the crop. For example, to find the best financial technology applications, you can start with a list of the top 20 FinTech apps.

Sometimes, a new vendor provides your business with a more cost-effective option. But before changing over, it’s wise to speak with your current suppliers first.

Negotiating with Current Vendors

Once you’ve taken the time to review outside options and fully assess your needs, you can start negotiating your vendor contracts. No matter what their competition offers, first approach current vendors with trust and fairness, especially if past interactions have been positive.

First, review your existing contract in depth to be sure of the terms. Many vendors have cancellation clauses or fees for early termination. You may want to wait out the period first. 

Next, arrange a meeting to sit down and discuss the contract. Ask questions about changing terms, escalating rates, and future costs. Keep in mind that negotiation is a give-and-take scenario. Reaching an agreement will take some finesse, but it will ultimately reduce or optimize your technology investments.

However, the vendor may be unable to meet your present needs effectively or affordably. Moving to a new provider should be done professionally and as amicably as possible. 

• Document any problems you’ve had with the vendor, especially if they violate termination clauses. You’ll need evidence, like an email trail, of where they failed to live up to their commitments, especially if they refuse to negotiate.
• Allow the vendor to fix these challenges. You may be able to give them a grace period that extends closer to the contractual completion date.
• Ask the vendor if they plan on changing or upgrading their offerings to accommodate your future needs. However, be careful that they do not promise you something that is not already in the works.

Moving to a new provider should always be done as professionally and amicably as possible, in case you opt to do business with them in the future. 

Auditing and Compliance

Accuracy in auditing and compliance is critical in safeguarding businesses from legal challenges and other problems. Using the best technology for these applications ensures that your company is protected.

Auditing Technology for All Sizes of Business

All companies can benefit from an internal audit of their systems. According to Investopedia, there are several different types of audits including: 

• Technology or IT audits, such as a TEM;
• Performance audits;
• Financial audits; 
• Operational audits;

In each of these cases, you may be able to make use of auditing technology. When looking for technology to perform your audit, look for these features:

• The ability to quickly analyze data and spot problems or discrepancies.
• Artificial intelligence and automation to help analyze the results, giving your team more time to review and make informed decisions.
• Data visualization, such as graphs and pie chart integration, to help everyone easily understand the information.

Auditing technology can also free up additional time in your team’s workflow, allowing productivity at your business to increase. 

Compliance Technology

Compliance is a type of audit that ensures your systems are compliant with existing laws and regulations. These laws can change regularly, so it’s important to perform compliance audits frequently. 

Some industries have more regulations to follow, but all companies can lose a great deal of revenue if compliance errors are not properly resolved. This investment will save your company time and money from costly compliance errors, as well as protect your staff, data, and inventory.

As the regulatory landscape can change quickly, you need to protect your company by having efficient tools in place that lessen the risk of compliance failure. To help with this endeavor, you also want to make sure that your compliance technology uses both AI and machine learning. 

Tasks can include:

• Searching for compliance-related keywords on the internet to find the latest legal requirements.
• Review and predict potential technology security risks, such as data breach threats, to safeguard assets and data.  
• Review software updates and patches to ensure they are up to date

You can use a more generic compliance technology system that accesses the cloud to discover regulatory changes and risks. However many compliance software systems are industry-focused. For example, healthcare companies will want software that meets HIPAA needs. Legal compliance software can help a law firm meet BAR association guidelines and ensure proper billing management.

To implement compliance technology, you can take the steps above to find new vendors. If you are working with legacy solutions, ensure that any new software integrates seamlessly. 

Next, you must ensure that your compliance team and affected clients are on board. Start internally. Help officers and managers understand how this technology will improve their departments, safeguard the company, and enhance their positions rather than putting their roles at risk.

Have your team train on and test new systems until they are comfortable. Once achieved, you can roll out your solution to clients. You want to be sure to ease them little by little rather than throw them into a new solution without warning. 

For example, once you have selected the solution before implementing and training your staff, you can inform your clients of upcoming changes. Be sure to include how the new system will benefit them, including reducing errors and discrepancies to make processes flow in a timely manner.

Best Practices for Technology Expense Management

As you can see, technology expense management is an effective and useful tool that helps to streamline your business. If your company has not implemented TEM before, or if you are revamping your current system, you’ll need to be aware of best practices before starting.

• Begin with a review of current technology expenses, existing technology budget, and technology cost review for past years.
• Implement a basic expense tracking and reporting system to help effectively manage the project. While it can be as simple as a spreadsheet, a more robust reporting system will help optimize the process.
• Consider recent and upcoming changes in your company, including forecasted growth, changes to your business, or any other considerations that will impact your technology needs. 
• Sit down with executive staff, department heads, and teams to allow them to be part of the conversation.
• Create a plan to move forward, including vendor and contract reviews, revamping budgets, putting projects or staffing on hold, replacing systems, and rethinking your business.
• Start implementing changes in a step-by-step manner. Prioritize changes with the least impact to get the ball rolling. Task automation tools or project management software will be helpful at this stage.
• Be sure all key stakeholders are on board, including vendors, teams, management, and clients.

Once complete, systemize the process so you can repeat and review at least once a year. This ensures your company remains on track with effective, cost-reducing technology management.

Future Trends in Technology Expense Management

What does the future hold for technology expense management? Some key trends for 2024 include:

• Many analysts and leaders foresee a cashless society in the future. This requires better management of business credit systems, allowing a more streamlined approach to expense and asset management.
• AI and machine learning are available in many applications today. This trend is going to spread to all other business systems.
• Increased demand for more cloud and mobile systems to manage processes. These systems allow businesses to continue to function in crisis scenarios.
• Real-time tracking, reporting, and analytics.
• All of this will require more tools for secure compliance measures.
• Paperless systems will eliminate the need for expense reports.

As you can see, the future of technology expense management is full of opportunity. TEM is critical for any company that wishes to reduce costs, especially if the business forecast is positive. 

Future growth impacts technology needs and TEM eliminates redundant, unused, or inefficient tech with systems that boost performance and productivity. TEM optimizes your company’s systems and budget, and performing an audit can save your business a significant amount of money.  With new tools and systems that can provide for a changing marketplace, TEM is here to help you protect your business.

This article Streamline Your Technology Expenses with Effective Money Management originally appeared on Rick Orford - Helping You Invest In Yourself.