9 Tips If Your Vendor Management Budget Is Small to Non-Existent

Let’s get this out of the way up front. Every organization has vendors and every organization has a vendor management program, even if your program isn’t formalized. That’s right: every single one! Wow! I feel better now.

Each organization has three things they must do: produce a product or service, market that product or service and finance the production and marketing of that product or service. Don’t see vendor risk management in that list? It’s there. Just hidden and unformalized.

Lack of a Formal Vendor Management Budget Doesn’t Equal Lack of Spend

Having no formal vendor management “budget” doesn’t mean the organization isn’t paying for the vendor management program they have in place. Vendor management programs are being paid for by every organization, but the organization must be mature enough for the risk management program to be formalized with a set budget. Time and again, over the course of my career, I have setup enterprise level programs and had senior executives and members of the board of directors comment to me that they had no idea what the program was costing or how much the program was saving, until we took the time to accurately capture the numbers.

All vendor management programs tend to start at the same unorganized, underfunded, underdeveloped place. The first stage in the developmental process is vendors being handled by the individual business units. As programs mature and evolve, they begin to develop formal budgets.

9 Vendor Management Budgeting Best Practices for Those Starting Out

If you don’t have a vendor management program or a budget for vendor management that means you’re probably just starting out. But not to worry, your program will mature and develop along the way. 

Here are a few useful tips on how to get from step one to where you want your vendor risk management program to be:

1. Get an accounts payable dump. The only way to know for certain who your vendors are is to see who your organization is paying. Accounts payable is the bottom line on who your vendors are and how much each one is costing your organization.
2. Target your search for active and inactive contracts. Ask the heads of your lines of business who their vendors are, and when they give you their lists, ask them for copies of the contract and any supporting documentation they may have on their vendors.
3. Track your time spent on risk management. You can’t begin to imagine how much time an unorganized program takes. When you begin to add up all the time being spent managing the risk management process, you quickly see the need to get organized.
4. Build your risk management portfolio. As the contracts and documentation begin to trickle in, organize everything and create your vendor portfolio. List every vendor with a valid contract and record the pertinent dates found in the contract.
5. Understand the vendor management lifecycle. Educate yourself on the stages and what your organization needs to do in each one. This will help you pinpoint where time is spent and just why a vendor management budget is that much more important.
6. Gather your facts on hours and dollars spent. Estimate the number of hours and the total dollar amount your organization is spending on vendor management.
7. Prepare your report with your research. Create a report that accurately details what your research has turned up and present it to the appropriate audience. They’ll help you refine your presentation.
8. Socialize the reality by presenting your findings regarding vendor management. This is your final report that you’ll present to your senior management team… and if they approve, your board as well.
9. Make the ask for an appropriate budget! If you never ask, the answer is always no. So, go on: make your move and request an appropriate budget. You may not get the exact funding you’re after, but a well-made case won’t get you the funding unless you make your request clear!

The difference between the first level of program maturity and median levels is about 2.5% of your organization’s bottom line. You can improve your bottom line with a fully functional vendor management program. After all, isn’t our goal to make the organization run better, cheaper and faster? It should be! We should be looking for every way we can find to push our organization to be the best it can be.

Smart organizations get prepared and develop risk programs to streamline the P’s (Policy, Procedures, Processes, Projects and People). They understand that simple concept and put all the pieces together to create an enterprise class vendor risk management program.

If you weigh the overall savings, there is a big ROI to investing in vendor management. Download the eBook.