This post is excerpted from the free Coupa ebook How to Cut Costs in the Cloud: 5 Spend Management Best Practices for 2010. Look out for more best practice tips next week, or download the full ebook here, at no cost.

Best Practice #1: Skip the surveys, and benchmark against real transactional market data.

In general, business performance is about beating your objectives, trending in the right direction and doing it better than your competition. Without real data, it can be very difficult to measure your performance, particularly relative to others in your industry, or perhaps even relative to another division within your organization.

To date, benchmarking for the industry, both in terms of commodity pricing and the efficiency of the procure-to-pay process, has been based entirely on comparison to survey data collected by consultants and analyst firms. Neither represents a true representation of companies’ procure-to-pay transactional data.

An Accurate, Real Time View of Spend Performance

Enter cloud computing and the incredible power of the network effect. Cloud computing applications with a true multi-tenant architecture offer an inherent advantage over premise-based solutions, and even their single-tenant on-demand (hosted) alternatives, because they enable the aggregation of data across the network or platform. For Coupa, that means aggregating the billions of dollars in spend through its platform into transactional benchmarks for more than 30 key performance indicators. Companies can opt-in to the program to measure their performance, both against prior periods’ performance, and against the market benchmarks, providing a real-time report card and true visibility into the effectiveness of the company’s savings programs. Based on actual transactional data through the system, companies can use the benchmarks to determine their performance relative to the broader market on metrics including:

-Savings as a percentage of spend

-Average requisition approval time

-Percentage of requisitions rejected

-Percentage of purchase orders revised

-Percentage of non-matched invoices

Consider the Potential Ramifications of Benchmarks

What if you learned that, on average, turnaround time from requisition to approval took two hours, while at your company the average is three days? Wouldn’t you consider simplifying the work flow and approval routing process at your company so that employees can get the goods and services they need to do their jobs faster? How much administrative burden and expense would that eliminate?

Readers: Do you currently manage spend in the cloud? Share your best practices in the comment section. We’d love to hear from you.