The Real Reason Your Budget Gets Blown Up Every Year
Nov 21, 2025

Listen & Watch
Budget season brings out the worst tensions between finance and procurement teams. Finance complains that procurement surprises blow budgets while procurement argues that finance doesn't understand the unpredictable reality of software buying.
In this inaugural episode of The Spend Table, Michael Shields (VP of Procurement), Russell Lester (CFO and President), and Justin Etkin (COO and Co-Founder) tackle the messy intersection of budgeting and procurement. They explore why existing spend gets grandfathered in while new purchases face intense scrutiny, the hidden costs of underutilized software licenses, and practical strategies for making smarter budget decisions.
Key topics covered:
[00:00] Intro
[03:19] Strategy drives budgets not vice versa
[04:22] Why new spend gets scrutinized more
[06:43] Zero based budgeting reality check
[09:23] Budget constraints prevent free spending
[11:01] Annual budgets versus flexible forecasting
[13:16] Collecting deeper spend intelligence data
[15:36] Moving beyond functional budget silos
[16:32] Contract driven budgeting beats ERP approach
[18:39] Three critical supplier evaluation questions
[20:00] Four essential budget data points
[22:26] Six figure surprise spend ownership
[29:04] Budget flexibility for breakthrough opportunities
[36:09] Proactive procurement closes strategic gaps
[38:25] Underutilized licenses waste budget reality
[44:43] Data a la carte segment begins
[45:45] Zero based budgeting unlocks 25% savings
[47:03] 253 budgeting tools exist today
[48:20] Only 15% see AI value lift
[53:42] Story of the week begins
[56:39] Video license optimization saves major budget
The team shares real examples from their experience at Tropic, including how they reduced video recording licenses from 200 to under 100 without impacting productivity. They also dive into the four critical data points every procurement team should collect: contract end dates, user sentiment, market alternatives, and pricing benchmarks.
Whether you're in finance frustrated by budget surprises or in procurement tired of being the scapegoat, this episode offers actionable insights for breaking the cycle of budget season chaos.
Justin (0:00:00):
In a perfect world, we'd be able to take a zero based budgeting approach every year. But the reality is, that process is extremely time consuming.
It requires a degree of insight and awareness around the intricacies of what this thing does and what that thing does that simply no centralized function can do. It's impossible to know all of the nuances between this random engineering or Devops tool and and that one.
The reason why we run into this problem of a grandfather existing budgets is be a the human capital and labor intensive side of making those changes. In a lot of cases it's far more expensive than the cost of the tool itself.
When evaluating and weighing those trade offs, should we just keep this shelf on and, you know, some people are using it, but the pain to change will far outweigh the cost to actually renew even if we know there's probably better solutions or or better capital deployed elsewhere.
Michael (0:01:00):
Welcome to The Spend Table to show where cost and spend intelligence has served up fresh and, you know, no topic is too spicy to tackle.
So my name is Michael Shields on the vice president procurement here at Tropic. And this is our inaugural episode. And at first, you might think, hey, the world doesn't necessarily need another podcast right now, but I'm hoping this will be less head nodding actually more respectful debate I think it's going to be really impactful valuable insights, takeaways, certainly things to think about hence the name, the spend cable, and I freaking love that.
So we've got Russell, CFO extra. I we've got Justin Etkin our Coo o and cofounder?
Justin (0:01:42):
I had the pleasure of watching these two spends lock of time battling it out behind closed doors talking about our spend and expenses and vendor relationships. And so I get to share that with everyone else today.
And so we're tackling today something of that's happening right now at companies everywhere ourselves included, budget season. And Mh there's some real tension here that's that's worth on unpacking between the the different powers at play.
And before we jump into it though, Russell, I wanna turn to you as Cfo and president at Tropic, budgeting is just one element of the of the cycle. So what what goes into this process and and why does it matter to to get it rate?
Russell (0:02:26):
Yeah. We were talking recently about this. It it kind of presents a pet peeve of mine. And that is people use the terms strategy planning and budgeting and sometimes even forecasting all interchangeably, and they necessarily mean something completely different.
They also often look to the budget process, to answer questions that are supposed to be answered by the annual planning strategy setting process. So strategy is really about where you play and how you win.
Annual planning is where we translate our choices that we're making into target and initiatives, and then the budget under gu that. But people invert it. They always, like, let's start with the budget, and then answer what our strategy should be. And that's that's a recipe for a disaster.
Justin (0:03:19):
Yeah. Absolutely. And and having the discipline to to beat thoughtful and in first principle thinking is is really important to to get these things. Right?
Or so, you know, I know I've heard the complaints. We've all heard the complaints Finance says, procurement surprises blow up their budgets. Procurement says, finance doesn't understand the reality of software buying that these things are unpredictable that there's incentives that play to make the timing of this completely out of whack.
And I heard one person to say, budget of season is really procurement annual humiliation ritual, Russell. Is that true?
Russell (0:04:00):
It gets to whether procurement is a noun or a verb. I mean, procurement, the noun, the team, the role is often owned by finance. But procurement as the action of buying things that you didn't plan to buy as a verb, absolutely does blow up the budget and can create... Can be the villain of the budget.
Michael (0:04:20):
Maybe this is a bit of a spice to take. Okay? I actually believe that there is too much scrutiny for new budget spend requests, but not enough scrutiny for existing. Line items.
And so Russell, why I heard you is, like, you know, you say saying, hey, Like, getting caught off guard, like, totally get that. Like, you need to be able to forecast, but I I do think there's a lot of truth to that. Because when you are buying something new. There's a lot of unknowns. There's a lot of unknown variables. There's a lot of assumptions being made. Okay?
And so naturally, you're not gonna have all the answers. You wanna make... You wanna der risk it as much as possible. For existing purchase purchases you...
Russell (0:05:06):
Actually have a lot of that dave. You you've used the tool for a year or two years wherever the case may be. And yet sometimes it feels like the existing budget is much easier to get. But new budget is really hard to get, and that feels backwards to me.
I mean, I agreed, but the reason finance gets exercised about the new stuff is the new stuff is what's likely to go above and beyond the budget. The new stuff that was unplanned that somebody's hair brain idea, or it's gonna save our conversion rates, or it's, you know, it's gonna be the miracle that turns the quarter around that new stuff, those are the budgets. Busters.
But I think you have a point that the existing stuff can be the silent killer cholesterol, of the of the business and of the budget. Because if we just, in a sleepy way, just rubber stamp approve that, that... That's how you have spoil in the system.
And I do think we should do a better job figuring out... Wait a minute. Should should we renew this tool? Is it doing what we hired it to do, and we probably over index on new, but that's why we do it because it's the budget.
Michael (0:06:12):
I get the reason why, but I I... And Justin will love for you to weigh. And I I guess, like, in my mind, I think why do we have budget to begin with. Like, we we we spend money to do to keep the company hopefully achieving what it needs to achieve. Right?
And if and if the existing spend, if we're not putting that scrutiny on it, then art is it? And and we have more data, but is it helping us achieve those goals whereas the new stuff you know, you're never gonna have a perfect set of data there. You're gonna have a lot of, like, assumptions. So...
Justin (0:06:43):
What think I think like, I think we could all agree that in a perfect world, we'd be able to take a zero based budgeting approach every year and say, you Here's what what we actually need to accomplish and where can we allocate budget to do so.
But the reality is that process is extremely time consuming because it requires a degree of, insight, and awareness around the intricacies of what this thing does and what that thing does that simply no centralized function can do. It's impossible to know all of the nuances between this random engineering or Devops tool and and that one to, defend why we can tear it all down and build it all that up.
So for one, two type consuming essentially. And for two, to type consuming for the stakeholders. The reason why we run into this problem of of, kind of, grandfather existing budgets is the the human capital and labor intensive side of making those changes.
In a lot of cases it's far more expensive than the cost in the tool itself. And when when evaluating and weighing those trade offs between, should we just keep this shelf on and you, some people are using it, but the pain to change will far outweigh the cost to actually renew even if we know there's probably better solutions or or better capital deployed elsewhere.
Russell (0:07:59):
Yeah. You can't make. Spend or cost decisions in a vacuum. Because it may look good on paper to save the money and cut the tool. But if it means another team, upstream or downstream has to transform how they're doing something, and there's not the capacity to do that, then can't go that route.
Justin (0:08:16):
And I think that they're... You know, there there's no there's no binary. Right? Like, ideal state, zero based budget. Let's let's take it all no sacred cows.
But reality state is you could make some of those, you know, those decisions and decide where is the capital investment on the human side worth it for the order of magnitude improvement and efficiency or productivity for the team. We're seeing with the Ai wave, These decisions are happening increasingly as part of the budget cycle.
How can I level up my technology stack to ultimately give more leverage to my humans that are that are doing their jobs day to day with a generation of of solutions that take a lot of the heavy lifting off their plates?
So, yes, does that required imply some brain damage going towards unwinding existing infrastructures and existing tooling? Yes, but the the decision there as part of the business cases, it's worth it because the long term or even short term line benefits are gonna far out outweigh the cost to get there.
Russell (0:09:19):
I feel like embedded in one of your questions, shields was to budget or not budget. Or, like, what's the point of budgeting. Right?
You kind of asked that a little bit earlier and, like, think about think about what happens if a household operates without a budget or, like, just a mindset of the opposite of a budget? Right, without that sense of operating with a scarcity mindset, what you have is people don't act as good stewards of the business.
It's a free for all there isn't a disciplined approach to what to spend how to spend where to spend. So I I think budget budgets are necessary, but they should not drive strategy, they can be a constraint. Against, you know, just doing anything and everything, but they need to flow in sequence as a handoff from the annual planning process.
Michael (0:10:14):
Yeah. I hope I hope I never come across as selling that's saying hey no budget. Right? And but I I will say this.
I know I'm sure we're gonna move on to the next topic, But I think, you know, right now, everything's budgeted, like, to the Tropic where it doesn't much doesn't leave much room for anything else. I I I do subscribe to the notion that you can collect data, and I think I don't know that we're collecting all all the right sorts of data, but but that does challenge some of that existing, Maybe not fully zero based all the time, but also allows some room to say, hey, we're gonna un leave this un budget for ideas that come up and then we're gonna prioritize those throughout throughout the year, and I don't see that happening as much as as we as it should.
Justin (0:10:55):
If fair were question to ask is what what is the purpose of the annual budget? Are we in are we in business cycles right now that are too fast and to fluid that a rigid twelve month budget is the act... Is the right answer for for giving that clarity?
Or should we be dis this strategy planning and budgeting cycles such that, sure. Strategy and planning can be an annual ambition, but budgeting is happening on a shorter time frame and, a more iterative cycle. Russell, Don't know if you've taken her experimenting with this. Yeah.
Russell (0:11:30):
For sure. Obviously, if you're publicly traded, you have to give guidance to the market in a budget is absolutely critical for compliance standards for the board to approve and rat your plan and otherwise.
But even if you're privately held, there is the investor sentiment to remember, that if you just get them to agree to fund the business on a quarterly cycle, it's too short term focus and you may not see far enough down the road to know if there is a liquidity issue or a missed opportunity so I I do believe I'm still a a proponent of annual budgeting, but I think you have to give flexibility for the forecast to update.
You know, I hear people say all the time, Should we adjust to the budget. No. The budget is set annually? It is the forecast that changes quarterly.
And then what is that cycle to figure out what variances to the original budget do we need to rat as part of the new forecast? And how do we put at the center of table, those decisions that need to be made?
If we're if we're running well against plan and there's found money to be deployed? How do we decide who gets that? If we're running behind plan and we need to claw back. Where do we call back? That, you you can't do that annually. You have to do that. I mean, probably even more frequently than corporate.
Michael (0:12:54):
So if if annual was kind of, a unnecessary evil, and you didn't say that, but that's kinda how I interpret it in some ways. Like you kinda have to have it.
Do you think... Well, actually, I'm just gonna make a statement instead of asking a question a leading question. I I I don't... I have often seen that we're not collecting we're not collecting the right data always.
Does that make sense? So we're collecting a lot of his historical data, what we spent it on. And I'm not saying they use, you know, peanut butter spread to figure out where we go from there.
But I I I do think and this is where procurement and and finance can really help each other out is going one level deeper from not only utilization, but understanding kind of the Roi as well as some of the trends for, you know, the software itself. Right? And, obviously, Tropic can really play a a a factor here here.
And I don't see that second kinda sub sub layer data being collected. But then the third aspect of the data is really coming from the users themselves. And I totally get that stakeholder time is is is really important, but are we collecting some subset of data from users both within our company and users outside the company as well that we can act on.
And I think that that helps us understand what impact this potentially can have how satisfied we are with a particular supplier and things that nature. So I see a lot of that tier one stuff, but I don't see a lot of those other two levels of spend occurring. And then I worry that impacts your forecast that you, you know, really, really need.
Russell (0:14:33):
We're thinking about budgeting mostly from a cost perspective, but budgeting also, of course, includes revenue, and therefore, you're thinking about the overall operation of the business and the interconnected nature of, and I am frustrated that, no matter the company I've ever worked for global or start up, multi billion dollar or, you know, starting at zero.
It seems like there's a poor understanding of how the overall system itself, which is comprised of all these investments that we're making? How do they interact together to drive the the targets and how well are they functioning?
We kind of view them in silos Right? This is marketing budget. For their tool set. This is sales budget. There's... So the functional approach to budgeting kind of prevents a business from self actual some of what you're saying, that second tier, stuff that would really get to the heart of, are we spending money on the right things? I think functional budgets hinder that?
Justin (0:15:36):
I think one big evolution that I'm seeing across some of our most sophisticated customers. That are that are effectively blending procurement finance in the budgeting process is moving from an Erp and expense based budgeting process to a contract and solution based budgeting process.
And then in an Erp budget process, all you have is spend a balance. Right? You know how much you're spending every month, and you can am that out, you can you can factor in some uplift whatever might be, but your divorce from the reality of... When do I actually have a decision point around you might wanna be, restructuring, re evaluating my stack and recon figuring how people interact with the systems and solutions that they have access to?
And the most sophisticated teams are taking a much more proactive stance on a contract driven budgeting cycle because they know when these date... When these key dates are, and they can work that into some of their planning, And understand, we have a big sourcing event that's coming up in nine months that can actually set the direction and trajectory of what our technology strategy is gonna be for years to come.
This is time while spent so that we can get to the place we want to be in advance of that of that, of that point in time. So maybe that's a, you know, a happy medium where we can get to, which is helping more and more companies evolve from this Erp kind of dumb budgeting approach, which takes everything for what it is on a grandfather approach, and move them to a more proactive and intelligent approach, which factors in dates and and moments that actually matter for for for decisions.
And then give us the opportunity to layer in the valuable intelligence and data that helps inform good decisions.
Russell (0:17:26):
Yeah. As your point that the Erp and the general ledger is not capturing all the proper metadata that you actually need to make the decision because it's too sterile. It's too binary of a look at?
Justin (0:17:39):
Exactly.
Russell (0:17:39):
It's just dollars and cents. It's not the background behind why did we make the investment? What were we hoping it would achieve what alternatives were considered, are we getting a fair price and on.
Michael (0:17:50):
You know, we... We... So some of our customers, Justin, you know this. We we do like these technology stack analysis in reviews. And a lot of those, by the way happened to coincide with budget season, which is... I I think there's an interesting phenomenon there, but some coaching I usually provide to whoever I'm talking to and oftentimes is procurement or finance or or a mix of the two, then they say, hey, go out and ask three simple questions. Right?
Number one, like, how critical or, you know, is the supplier to the business? And and and by the way, it's on a scale of one to five, you know, you know, what business goals does this help help us achieve? These are all, you know, multiple choice type questions? And in number three, like, how open are they to exploring other solutions?
Like, even collecting, with which you can collect, and and we used to do it manually and then Tropic rolled out, which honestly is my favorite feature of the year, the the pulse surveys. You know, I'm I'm I'm I'm very enthusiastic about these.
But even collecting those three date data points. Those aren't gonna be found in Erp system anywhere. Okay? And it's really not that hard to get.
But but when you what it allows you to do is it allows you to start to connect the the the historical kind of and required budget process to sourcing. You start to, like, connect those two things together because you can say to Justin's point, hey, this kind of comes up for renewal in June. Let's say it whatever the case may be. Right?
And and oh by the way, like, we feel like it's critical to business, but we're very open to exploit other solutions because maybe there's some pain points or or things of that nature. Guess what now you can start to control your destiny a little bit more through the budgeting and the sourcing connective tissue.
So if I wanted to kinda put a bow on this because this is very much and an app actionable, like, insight type podcast, you know, Justin, like, what would you recommend? In addition to what they've historically collected, what are a few data points that they should try to go get you, like, for example, you mentioned end dates. Right? Contract end dates. But, like, go a little bit deeper. I I don't know if you can go so far as say your top five or or whatever the case may be. But, like, if to... For for someone listening to say, hey, am I collecting in information, And then, like, how can I get that?
Justin (0:20:00):
Yeah. Totally. I think that the... There's... There's probably four things. End date slash opt update. You need to know, like, what's your milestone so that you're not gonna interrupt service have that. That's that's... Key one most important thing.
Number two, sentiment, you mentioned call surveys, getting an understanding around how users are feeling about a solution is highly informative around whether we wanna keep this, whether we wanna double down on this or whether we wanna start pulling back because we're not getting to value and and Roi out of what we will be invested in.
Number three, alternatives, You wanna be able to go into these moments to have an understanding around, what does the landscape look like? Are we missing something for this big investment of ours that might be underperforming and have those alternative solutions in your back pocket? And and ready to deploy a sourcing strategy to to be able to bring them on.
And number four, is the actual pricing in benchmark data. You may have a solution that's a target for re evaluation and learn that you've got bottom dollar dirt cheap pricing, best you're gonna find anywhere, best not to rock the boat.
Or you may find that this you know, low priority, low value solution is extremely expensive relative to what you should be paying. Perfect. We've got... We've got a replacement opportunity that's not gonna drive a ton of savings, but we'll also unlock value and make all the users much happier that engage with that system every day.
Michael (0:21:39):
Yeah. One one one thing I wanna make sure listeners know is that benchmarking what you're talking about there doesn't need to be reactive.
Like, if if you have... If you have your you know, system hooked up to the right tool, it can try proactively flag that for you. Because I need a lot of people are thinking, like, oh my gosh. Like, what resources do I need to, like, go pull that data, and I just wanna make make that very clear.
A lot of that, you know, once again, with with technology that, by the way, wasn't available to me as a procurement person until, like, very recently, You know, we were stuck in the stone age of tools even e even as recently as seven eight years ago, you know, lot of that has changed. So I just wanna make sure people understand that.
Justin (0:22:21):
Let's say we've gotten through our iron cloud budgeting process, and we're tight. We're ready to go. It's now March first. And we've got a six figure popping up out of nowhere. Not budgeted.
Michael (0:22:37):
Wait lion. Okay. Keep going.
Justin (0:22:41):
And, apparently Not so wearing Cloud. Apparently, very leaky, Lots of holes in this bucket. Whose false is that? Is that finance or is that procurement?
Michael (0:22:54):
I'll I'll fall on my sword honestly, Like, I I genuinely feel like... That would be a big procurement miss, frankly speaking.
The reason why is because... And that's probably the answer you expect I was probably you expecting probably expecting me, like, point point over to finance. But but no.
I the way I... The way... Like, I'm just stood up a function many times. And one of the first things I do is I I go to finance and say, give me a data dump from the Erp system of, and that should be very easy to pull of who we're spending money with and helmet. Okay?
And then my... What I do at that point is go find the contracts or talk to the suppliers to figure out. And and so I I I really shouldn't lack that visibility because job number one for any procurement person should be like, enhancing that visibility.
And so if if that's the case, then I I would argue it's it's... I'm not gonna say, poor procurement because let's be honest, like, you know, some of these are very complex, but I I do think that that that, falls more on on procurement. So probably not the answer you're expecting, but... It's an honest one. I... I've I'm a huge ent for procurement and I'm also our biggest critic too, just definitely fyi I. So...
Russell (0:24:09):
Well, I'll give you a hot take neither. It's the fault of the budget owner. It is the fault of the person making the purchase.
You know, I think this is a problem with companies of every size that fiscal discipline and stewardship too many people re that to that's finances job, or that's procurement job. Let's step back for a moment.
We all know when we talk about customer success, whose job is customer success. Is it just the customer success team? No. We've all been taught... It's the whole company. Right?
So whose job is it to properly manage the company money. Obviously, finance has that formal responsibility? I am chief fiduciary. Ultimately, the buck truly does stop with me.
And, yes, I expect my procurement leader to have their hand on the pulse of that and avoid surprises. So I'll be greatly disappointed. But I hold chief accountable, the person that's spending the money.
Michael (0:25:15):
I'm I'm gonna push back on that just a little bit to be honest with you because I think in theory, you're probably right, but it's almost like a moot point because expecting budget owners or stakeholders to act in a certain way is is almost... I'm not saying naive, but it's never gonna happen, frankly speaking.
It's never gonna happen so to suspect something that's never going to happen. There's just too... If it's hurting cats, You know, and and cats don't hurt super well. There are gonna be...
I'm not trying to insult budget. There's a lot of very good responsible budget owners that. There's not what I'm trying to do here. What I'm trying to say, is procurement, you know, the the stakeholders do their part. The budget owners do their part and procurement should be that fail safe to be honest with you.
Now, the problem is that so many historically have operated out of excel files, and it... And it's moving targets. That... That's not an use anymore either because tools should automate so much of that.
Like, tools should be able to flag, especially in the world of artificial intelligence to be able to flag, hey, you know, we have a spend here and we don't have a contract here. You know, it's kinda table stakes at this point.
So I hear what you're saying, but it's it's just... It's expecting a a a a level of per... Perfection that is never gonna happen.
Russell (0:26:36):
Fair enough shields, but I'll give you a counter point. Imagine if we thought the same way about information security. And we said only the Cis is responsible for securing our data. And therefore, you leak data to a competitor or you leaked data that is publicly identifiable.
Who's at fault? Our Cis or you, you're at fault. You're the one that leaked the data. So my only point is, I agree ultimately formally procurement is responsible.
But we need everyone in the business to be fiscal minded to understand if you're a big boy and big girl and you own a budget, you need to manage that budget and be responsible for avoiding surprises. But you need a tool to be there. Obviously. You can't we can't expect them to do it through us.
Michael (0:27:21):
We're gonna need you to weigh in here because I don't think we're talking about a little bit of rogue spin, what I heard you say was a hundred, like, a six figure purchase, like, Let's be honest, if if Russell, if if someone came to you and said, hey, Whoops c for a six figure your spend and you're at dropping. Like, that's not gonna be, like, well, you know, stakeholders should have done that. Right?
Justin (0:27:39):
What I think I think I think that it's interesting because my default answer is that's finance fault. Well. And and, you know, I thinking I trust...
Russell (0:27:49):
Well, then that's like every other thing, blame finance for...
Justin (0:27:53):
And and where I'm coming in, I'm I I trust my my robust and thoughtful and thorough finance team to look over and, look under every rock to find all the gaps and and make sure that we're buttoned up.
And so, a missed renewal in my mind that cost us that much money. I go straight to my Cfo, Russell and say, W man. I thought we have this... I have thought we have this spun up now. Now where Russell goes, that's that's up to Russell to decide where where the responsibility should should go, and and who needs to be open.
Russell (0:28:29):
And then I go, oh, Justin, you never loaded this into our system of record. So we were blindsided and didn't see it. It's actually you that's spending the six figure.
Justin (0:28:38):
We're in a situation where the cofounder is personally owning a six figure contract, then we're we're in bad shape. That means there's more of those and and we're we're in deal trouble.
Michael (0:28:46):
I'll Blame finance when... If they if they won't approve my... You know, once again, table stakes, spend management tool. That's where finance can get the blame. So...
Justin (0:28:56):
Nice. We're okay. So that's our that's our one scary scary story scary.
Let's let's think about another one. Alright. Let's say, okay. We talked a little bit about the... We set the budget and...
Shield, you mentioned these new purchases that we should be much more fluid in thinking about supporting against the budget. Now how how have you guys seen scenarios where the budget can get thrown out the window because there's an opportunity that's too great to pass up?
Or how should our customers and teams that are out there be thinking about, what's the what's the level of fluidity, plus or minus x percent that we we should tolerate in order to take advantage of a of a big opportunity to drive our life of the?
Michael (0:29:46):
You know, You're you're you're... This is this is like great questions. It's kinda proving my earlier point, which I don't know that we fully landed on.
And and and, Russell, I don't know that we were exactly saying the same thing because I do think that there needs to be a budget. What I was guess is saying there's like, not all parts of the budget have to be allocated exactly right away.
So, hey, there's approval to spend up to whatever certain amount of. But maybe there's a little bit left in there was that?
Justin (0:30:10):
The slash? The.
Michael (0:30:12):
That says that's a negative connotation to it, But it's, like, It's like the fun core reason, you know, high Roi type activities that, you know, need to beat a certain criteria.
Like, if we can think of a a strong acronym for that besides less one, that that I think I think that would I think that would be great because in the absence of that, you have a lot of problems. Number one, You have stuff that gets approved and then later on. You're like, I don't really need it, but the budget there. So let's go spend it as q four. Right?
You think that that kind of pushes that down a little bit, but it also ignores the notion that when you define every penny in a budget, it... You ignore the fact that stuff will pop up, but absolutely will absolutely pop up.
And then and then it becomes as, okay, where do we where do we pull from? And can we really pull from that if we're if we're kinda locked in. So I I worry sometimes that we over rotate on get on on deciding where every penny is gonna go front where it's more like, hey, eighty percent is gonna be, hey.
This is where it's going in and and maybe it's not exactly eighty twenty, but there is a portion of here that we're gonna... Hold and reserve because we know stuff is gonna pop up or we know that there's gonna be opportunities to invest in things that positively impact our our our business. Der risk certain levers, and we do it...
Russell (0:31:26):
On the cost side where we accept, hey, maybe we don't have full precision, vault precision for this particular item, and it shows up in some interesting places.
So for example, assuming a company will run it full staffing. Assuming certain levels of Tropic e. These are very common places that Fp teams s away like proverbial squirrel nuts for the business to unlock areas of opportunity to spend on things, but you can also proactively proactively just carve out and say, okay.
Tech stack investment. We know something's gonna come along this year. We don't know what it is. Couple hundred thousand dollars for unknown investment. And it's in the budget. It is budgeted, but it's unnamed. It's una allocated.
I think most finance teams if they were on here and responding to you. They would say, we agree and we already do that. The problem comes when market environment squeeze or out pace in a negative way beyond what you s away and squirrel away. And that's when you run into problems where you're having to steal from somewhere else to fund the great idea that you have.
Justin (0:32:38):
Russell, I imagine another approach at this even before we we tap into the slash fund, as I'm calling it. Part of every strong department leader is thinking proactively and strategically about their budget. Right?
And I know those conversations can happen where you're talking to our sales leader, our marketing leader and certain decisions are being made or or certain decisions are coming to you that look outside of budget.
But there's an understanding and a discussion around, the okay, where this coming from that might have already been, you know, rubber stamps and improves, and and now we're kind of free up capital and think about where we're gonna fund this investment from from existing in investments are spent.
Russell (0:33:23):
You know what my favorite thing is Justin related to that. When really smart leaders that are paid a lot of money get together, and work through the trade offs together, and they don't expect finance to be the police officer around that process, that is like a gift to finance.
And you could see why I would love that so much is because if you always wait till the end of the line for the Cfo to be the one to figure that out, it creates an unhealthy... Where I am the Cfo know instead of the Cf, let's go. It creates this tension where we're always the ones that are having to show up is the back I I far prefer a culture and environment where the leaders are have latitude and freedom to figure that out on their own.
Justin (0:34:09):
This this to me is honestly also the single most strategic opportunity for how procurement can get involved. And drive business forward.
Because if these conversations are happening at the department level, and now procurement can be coming in with data and intelligence that those department teams don't have access to themselves, So they can bring a fully informed perspective to the Cf, let's go and and have it fully built out.
That becomes a much easier thumbs up because the research been done. It's credible from you know, trustworthy sources, and there's a there's a real business justification behind it. I'm I'm cf if let's go. Coo all, let's go.
Michael (0:34:53):
Yeah. I I would agree that that's definitely been Mike experience too is, it's something I talked, you know, quite a bit about where, you know, you get numbers from sales that let's be honest are fluffy sometimes or or general in nature, and and, you know, look, as a Cfo.
I'm sure you see a lot of spend Like, it is my job. I think it's your job. It's our job to, like, push back on spend. Not because we we like pushing back on spend, but because we wanna make sure it's it's worth the capital.
Like, the spend is, capital is very valuable. And so and good procurement should be helping define, you know, strong decision criteria, make, you know, making an objective decision, but also, you know, using data to to show and to kind of you know, prove as much as possible, that it that it is a good good spend. I like that.
Justin (0:35:43):
When I when I talk to some of our procurement leaders, and we we talk about the the opportunities for being proactive and strategic with this type of data, it seems pretty revolutionary to them.
It's a it's a new way to engage with the business where pro procurement is able to bring data, bring intelligence to them proactively versus being seen as the reactive kind of, deal negotiator when the renewal is coming up and lands on procurement desk?
Like, what why is that? She, like, what's what's causing this this this gap between this strategic function that everyone wants to be versus the kinda back, I guess the wall reactive function that it feels like it often it is.
Michael (0:36:28):
Yeah. I like that you used the word gap there for sure. And and I do think data and intel way to close that gap because ultimately, in the absence of that what is the value that procurement brings the value the procurement brings is like you said, it's it's getting over the line.
It's it's structuring it the best in a financial way which is important, but sometimes that's not what the business really cares about. And sometimes that feels counterintuitive intuitive to what the business really cares about because maybe they actually wanna spend ten percent more on a tool that's gonna help them achieve their goals rather than, you know, ten percent less on a tool that's gonna make it hard for them. Right?
But when you can come to them and say, here's the data of a supplier that might actually help you hit your goals even more and oh by the way, like, here's an insights to where we can move faster because we know what a good deal is and how to achieve that prices, and so we can... We can get you...
And by the way, here's the way to get it through finance because here's what they're looking for. All of a sudden, it does take you from this, hey. Here's procurement who's gonna go beat up by supplier and get the best deal to.
Here's a valued partner who's gonna really make sure I have the best tool at the best price and get through the process quickly. So that way, I I can go, you know?
Justin (0:37:39):
So last question here. Often we're word, when I'm talking to, you know, new companies are not as necessarily new companies, but new departments that are standing up procurement or trying to enhance their procurement process.
One of the biggest things that they run into, and it really affects budgeting processes, I think we're, you know, using a bunch of tools that no one's actually logging into. Or you got a bunch of underutilized seats and licenses, and there should be a lot of opportunity to save from that.
How can I factor that into my budgeting process? And and and and squeeze some some savings out of it. And so, yeah. We hear it every single company.
Whether it's a a thesis that the office of the Cfo has about their spend or a reality, it's always it's it's pervasive. And so my question is getting to that point, is that a, is that a process problem or is that a deficiency of the procurement function or responsibility that allows us to happen? Or both.
Michael (0:38:45):
You go first dr and I'll just refute whatever you say. So...
Russell (0:38:52):
Well, I think there's a chicken and egg here. Right? Because process is in service to policies and standards.
So the process is there to try to safeguard against un spending unauthorized spending, agreeing to contract standards, the process and the tooling can't reinforce using tools that people have have said they need and want.
And you can't wait until the renewal cycle to bring that up. That's why that's why I I do agree to pulp surveys are super interesting shields because if you do that, you know, the one quarter into a new tool, you'll find out very quickly if people are like, this tool value is. That this is worthless. I'm not using it.
And so I think it is mindset. And I think it's a leadership gap more than it is, a process gap. I think the process can help reinforce and Shine a light on the issue with the tool not being used, but I don't think any amount of process can fix people not going in the tool and using it.
Michael (0:40:04):
Interesting take. I I am gonna I am gonna go a different route than you, not just because, you know, it's something I enjoy doing.
I I... Look, at the end of the day, a lot of the go to market motions for suppliers for Saas providers are established in a way to, you know, land and expand as much as possible.
For example, I I I have any of you ever been shared like, a, you know, for example, a lucid chart license and all of a sudden, you you you you realize that maybe you don't realize is that you... Whether you wanted or not. Are now a lose a lose site license holder type of opening? Does that make sense? Like...
And so, expecting a stakeholder kinda know all of that is is once again, kinda setting up for fail when when the process, especially, you know, on the go to market side was kinda set up to to kind of take advantage of that. And so I think that there are ways to build safeguards in.
Like, for example, if you're if you're talking about, like, process orchestration, You know, what's to say you can't reach out to your suppliers and say, you know, especially prior to renewal.
We, you know, I'm an advocate for building this in your process, but reach out to the supplier and they send us utilization reports. You know, because then, what you can then do is you can start to make decisions at the at the at the micro level rather than the micro... At the macro level.
You can start to say, hey. The question isn't, do we need this tool or not? The question is is what usage falls above an acceptable you know, usage, and which doesn't within the same tool. And...
And so I do think I hear what you're saying and maybe we don't have to be completely dia opposed here, But I do think that there are ways that a good procurement tool process, etcetera can build safeguards to protect and and and limit what... What, otherwise is going to naturally occur.
Justin (0:42:03):
I mean, there's there's definitely tension that exists in in many companies right now. Be thinking about, like, Ai is as an example. And and this was true about Saas, you know, five ten years ago.
When when a company is now going out and deploying Open Ai chat Eb licenses, we're in a phase right now where if you say no to a chat Eb licenses, you're not Ai forward.
If you're a user and you're, like, you're given the opportunity to have chat Gb and you're... You saying thanks. No Thanks. You better be worried about your job. In a lot of cases because there's so much pressure to be thinking efficiently and and productively, and and using tools to make your your job you know, that much faster to do.
And I think what ends up happening, especially right now is there's a lot of experimentation going on, new tools being purchased and over provisioning of licenses and access because the dream state is, kind of, massive efficiency gains everywhere to be found.
And the reality is probably not quite that, but you as an organization are still saddle with all of these excess you know, licenses, you know, access and systems that...
Russell (0:43:17):
May...
Justin (0:43:17):
Not have delivered on the on the stated of goals, but tough luck. You're you're stuck, you know, for a year, or two years, whatever that that contractor might have...
Russell (0:43:25):
And I think part of why this comes up a lot is a lack of clear champion or stay stakeholder owner of key systems and tools, which is why to your earlier point, part of the cleanup process begins with understanding, what are all the tools who owns it currently, not who owned it a year or two ago because companies are changing so much.
You've gotta keep current the owner of that tool and that owner, by the way, they need part of their role should be if they own the tool, they should own understanding how it's being used to people like it. Right?
And are you getting the value out of it that you wanted to? That's my only point is process is important. Procurement is ultimately responsible for avoiding unfortunate auto, But, ultimately, I want tool owners to understand their role in the process too because they're the one saying we should be paying for this.
We should be buying it. So they should feel some accountability to how it's being used. But to do that, they need it. They they need tooling. They need a way to know are users using it, how many licenses are used. What are we paying for them... And what's the sentiment about.
Michael (0:44:35):
I can agree. And so I definitely think that that all of that stuff can be built in a scalable way using the right tool. Hundred percent.
Justin (0:44:43):
We are moving on to my favorite section. Of our burg version podcast here called data a la carte. Each week, we're gonna serve up some data points that caught our attention.
Numbers that made us stop and think wait really they're rule simple? You bring a stat? You don't tell the others, what stat you're bringing, and we'll talk about if it really matters.
Michael (0:45:09):
Can we install acknowledge that J has an unfair advantage in this category. But I I will go first so is not to be, you know, under overwhelmed if I go if I go second or third here.
Not once again, this is our first time. I'm not sure if... I'm doing it exactly right, but I saw an article, report put up on Mckinsey c. And maybe in in in your mind, Justin.
You, if it's not put up by Bain, it doesn't matter. But they, you know, they... They're basically saying that you know, this idea of zero based budgeting programs typically unlock as much as... And that their range was ten to twenty five percent in in in in savings and cost. And so that once again, you know, kind of of course, reinforces the notion I I I held earlier is that, like, I believe that there's, you know, not enough scrutiny on existing spend.
And and some of the stuff that we've had for a long time that's kinda of been grandfather in potentially should be challenged.
Russell (0:46:13):
Agree. Yeah. May maybe even more than depending upon the company, maybe even more than that stat. It prop probably far more spoil happening in most companies throw Ai into the mix and who knows what efficiencies could be squeezed if we truly were zero base.
You guys ready for my number? Hit You got... And you gotta a guess... The way this works is you gotta guess what it is. My number is two hundred and fifty three.
Michael (0:46:38):
The number of Cfo in the United States who have a positive, you know, reputation.
Russell (0:46:45):
No. Good guess.
Justin (0:46:47):
The number of weekdays and or or business days in calendar year twenty twenty six?
Russell (0:46:54):
That's a very astute guess. That's not it. I mean, we do as a rule of thumb and Fp a assume there's two hundred and fifty two working days Right?
Two hundred fifty three, that is the total number of budgeting and forecasting tools available according to g two. That means if you are someone that owns budgeting, if you're a finance practitioner, you could use a different tool every single working day of the year. That's bonkers.
Michael (0:47:27):
Probably won't... It's load with Ai too. That's what's even crazier. Intent. Tell me that how that. Right.
Russell (0:47:32):
The deli proliferation of tools in this category. I mean, it tells me a bunch of things. It tells me no one player is solving this well for one, two, people probably think a lot of different things about budgeting and forecasting and what they need. But just like the barriers to entry must be incredibly low as well, I don't know. I think that number telling me a ton of things, But what do what's it tell?
Justin (0:47:59):
I think the the Rfp that we're gonna have to run on our Fp and a tool is gonna be pretty crazy in shi. I hope you're I hope you're ready for the challenge. Okay. I got... I got one. This is crazy.
I'm not gonna play your game. I'm gonna share it because it's it's...
Russell (0:48:17):
That's okay. I I was the surprise metric. That's a best friend.
Justin (0:48:20):
Only fifteen percent of Ai decision makers reported an Eb lift for the organization in the past twelve months. And fewer than one third can tie the value of Ai to any P and L changes.
Russell (0:48:33):
And those that are saying they can run.
Justin (0:48:38):
Here's my take. That's crazy. To me because the... For all of us that are pretty, like, Ai enabled people.
There are undeniably major value experiences that we're having every day that is driving us to be more efficient and more productive. Now my theory is that what's happening right now with Ai is there's a value capture paradigm and going on.
Where I think that I think that many people and kind of buyers have started to realize that Ai is not a full job replacement solution. It's more of a job enhancement solution right now.
So you can make super superpower full people you know, or or unlock superpower for people to become super humans in their in their day day. But you can't replace them fully.
And so when I as a stakeholder, let's say I'm I'm an account executive at an at a company. And I'm now empowered with all of these Ai tools and able to do my job my job that much faster that much better.
I am capturing a ton of value. Let's say that means I can now hit my quota in three quarters of the time that I that I could otherwise. Does that necessarily mean that that additional twenty five percent is getting red deployed into the business, or am I capturing that value to go hit some golf balls,
Russell (0:50:08):
watch that.
Justin (0:50:09):
Yeah. And and my perspective is right now, the majority of the value capture is actually happening with the humans. Rather than the businesses. And that businesses have not gotten very good at measuring the actual productivity and efficiency gains tied to Ai.
And so because they can't measure it. They're saying this is not... This is a failed investment. Not working, like, I need to see more until It can actually replace actual functions. And so...
But what you are seeing is that some of the most vigilant and aggressive companies are doing massive cuts. Amazon, Microsoft. The company signaling like, at the forefront of the Ai paradigm that are surely the best at measuring the impact of Ai are seeing the benefits, and you are seeing the headlines as supporting this benefit.
So for my take, this stat is crazy because it's just wrong, and the that... It's it's really more of a reflection on where the value capture is going right now and the companies that don't figure out how to adequately measure the Ai efficiency and productivity that's going on in their companies are gonna get left in the dust, if they let the really aggressive movers and players at as quickly and decisively as they are right now.
Russell (0:51:27):
I think another paradigm is you have companies that have perhaps gone through cycles of efficiency, gains or head count reductions. And employees may feel like they're overwhelmed And then in that case, Ai is somewhat of a hero coming to the rescue to help you out in your be chaotic day to just get the work done that you already didn't have the bandwidth to do.
But for Cfo, if they don't see it show up in higher revenue growth or reduced costs. It's hard to measure the Roi of that.
Now, there's Roi for improved employee morale, reducing regrettable churn, of employees. Like, this is a big topic with lots of tentacles.
But I do agree with you that the majority of the value is going to the user not the company and only really large companies with lots of cuts they could make. Are able to really benefit by just flat out.
But I think it's a pendulum them. I think those same companies. They're gonna realize they over reacted. And, yeah. Ai is driving huge efficiencies, but we're gonna see that, oh, we're gonna hire some people back. Right? Because you still need human in the loop.
Justin (0:52:41):
Hundred percent.
Michael (0:52:41):
Yeah. That reminds me of, like, the the age old, procurement, you know, issue where you go and, you know, say I work with marketing and go save them a hundred gram on a contract. But it's their budget. Right?
And so then they turn around and spend that saved hundred thousand dollars and the Cfo was like, well, where's the contribution to the bottom line. Well, the contribution to the bottom line, they actually be the top line because they reinvest those hundred grand and spent it on something else.
But it is kinda hard to do, like. So you say you two million dollars last year. Whatever the number is, but the bottom line didn't actually change by two million dollars. Right? So reminds me of that.
Russell (0:53:18):
Yeah. You're gonna find... Like, it's gonna require, like, forensic teams to trace the you delivery of Ai unfortunately because it's it's impacting so many parts of how we work.
Justin (0:53:29):
Passing many more conversations on this topic for us to discuss in the future. Okay.
Next section, my least favorite section of of our podcast is called story of the week from Michael Shields.
Michael (0:53:42):
Just just to be very clear, the section is story of the week. This week it's by Michael Shields.
Justin (0:53:48):
I'll let you I'll let you dig into this situation. We can we can hear and and respond, but take it away, mister Shields. Procurement.
Michael (0:53:57):
Alright. So I'll lay out the background a little bit. So, you know, as you know, we use a tool for video recording. And, you know, we found ourselves in a situation from from one to the next.
I think we're about nine months in. And our usage had Skyrocket and essentially doubling from a hundred licenses to two hundred licenses, you know, in that first nine months.
So imagine Russell, you're in the Tropic of Budgeting, and you looked at utilization and you're, like, oh, my goodness from a hundred license of you end license Like, I'm not gonna ask, like, what would you do in that situation, Russell, but maybe just really quickly and this is my story, but maybe just quickly, like, how do you think these are... Those sort of situations are typically handled?
Like, what what number are you putting in the budget there?
Russell (0:54:42):
Well, Cfo is gonna say, Helen on Earth are we using two hundred licenses for video recording? I mean, setting that aside.
If the system set us a hundred licenses, the risk is you only budget for a hundred. If you don't know that those conversations are happening behind the scenes about the two hundred. It's very possible, most Fp and a people would just look at the run rate and put in a hundred and you'd be under underfunded.
Justin (0:55:06):
There's other, like, you know, I think that we've we've seen scenarios where where where the most sophisticated Fp teams, they're watching the trends. Right? There's...
You can... For a lot of these consumption based usage based or or even seat based type agreements where there's lots of changes happening regularly? You can see these trends every month if you've got good reporting to know, wait, Are we on a consistent upward trajectory.
Do you need to get ahead of this somehow and and either restructure discuss with the, you know, the the team that's that's in demand of these products, and make sure we have an understanding and better predictability around around what's to come. But it's.
Michael (0:55:53):
Yeah. Totally. So I I I in my experience has been one, they... They don't recognize there's been an explosives and so then they budget for a hundred, and then you come renewal time. You're like, wait, what?
Or they look at the run rate like, hey, Like, they they dig in, they may even look at, like, single sign on data or whatever like, well, what's legitimate. When they budget two hundred. Right?
So in once near... I mean, you, once they're you budget for two hundred, and one near your budget for one hundred, like, that's a big gap Right? So what we did because once again, we don't... We... I I think it's a mistake to rely on a tool, like, that leverages is single sign on it...
I, you know, I I I it doesn't really show true value, you know, and especially in the world where you only have to re authenticate, like, once every thirty days. So we went in our... As our part of our process, we asked the supplier for data, specifically the number of videos recorded by employee by month. Okay?
And then we actually sat down. I was said, hey, what is an acceptable number here. So it wasn't like is someone using a license or not. We said, hey. The acceptable threshold is, And I don't know what the number was. Nine nine videos or eleven videos. We tried to be, you know, somewhat conservative.
And and so we were actually able to look at... Okay. Here's someone we actually feel like we need and then we broke it up so we emailed the people that were using it sufficiently said, hey, by the way, no change to your license. You're gonna keep it.
However, did you know that by the way, Zoom allows you to record natively right there in the platform. Okay? And we probably had about ten percent who are gonna keep their license who said, actually, I don't need it anymore.
Then the other group, we said, hey, you don't use enough. Unless you can justify to us why you should keep it. We're gonna take it away and probably about ten to fifteen percent actually, I was on, you know, leave where I just got a month ago or something like that and so they kept their license.
But at the end of the day, I don't remember what the number was, but it was less than a hundred licenses that we actually ended up keeping And so that is a massive... I think positive impact to the company, but it wasn't a cut that was felt very much. It wasn't super painful. Okay?
And I think that. Was that?
Russell (0:57:56):
You saved my saved I saved... You know, we together saved more money, but we...
Michael (0:58:01):
Did it in a intelligent way. And I think that's a big takeaway here as I meet with Cfo and the finance leaders is, you can make cuts that really don't feel like cuts. When you when you remove waste, it it it isn't super painful to be honest, with people don't really miss it. Love that.
Alright. Well, I'll just kinda wrap things up. I I kinda did the intro. Like, this is, you know, once again, are a no role, you know, The Spend Table where, you know, where cost and and and spend intelligent, and we serve it out for us.
We got a little bit spicy. I don't know that we fully, you know, came to a conclusions and everything. I think that's okay. Actually I think there's way too much head nod out in the market right now.
And so Hopefully, it gave you some things to think some things to think about. But, absolutely hopefully, there are some tangible takeaways. And obviously, if you wanna, you know, know more or, you know, follow ups then, you, you know you can reach out to us.
But thank you everyone for joining and thank you, Russell, and and Justin, this is a lot of fun.
Justin (0:58:58):
Real quick, our next episode, we're gonna be die diving into the world of Ai. Ai taxes to expect as part of your budgeting cycle, ai consolidation, thinking about the balance of humans and Ai and software, and all of the intersection of these complex topics. You're not going and miss that one. Okay.
Michael (0:59:19):
One for to. Thanks, gentlemen.
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