Background Information
Frontline individuals can be the weakest link for any business activity-and managing corporate travel expenses is no exception. The problem is that unlike the majority of corporate cost centers, travel expenses rely on individual choice and discretion, which leads almost inevitably to emotionally driven decisions and often unpredictable behavior. Even with the best tools in place, it is impossible to maintain full visibility(and hence control)of travel costs if employees are not mandated to use them effectively. Robust policies and procedures are essential-as are the desire and ability of users to comply with them.
How to Put the Brakes on Rising Travel Expense
Unlike some business costs, travel expense is one expense that most companies can manage better. It is widely regarded as one of an average organization’s top three controllable expenses, along with compensation and health care. Need help putting some curbs on your business travel spending This article offers some strategies.
ZOLL Medical Corp., a Chelmsford, Mass., maker of resuscitation devices, spends 1 percent to 2 percent of revenues per year on business travel expenses, according to the company’s chief financial officer, A. Ernest Whiton. For a company with 1 000 employees and 2005 revenues of $211 million, that is a sizable chunk of change.
ZOLL is hardly the only midsize company spending heavily on travel. With business people traveling more and rising fuel prices driving up aires, travel spending is threatening to spiral out of control in some companies. In a November 2005 American Express survey of U.S. finance executives, mostly at midsize businesses, 56 percent of respondents forecast higher travel spending in 2006.
Yet, unlike some mounting business costs, business travel expense is one expense that most companies can manage better. How According to travel industry experts, the basic principles of travel cost management are :
—Define rules by drafting a sound travel policy.
—Leverage your spending power.
—Carefully scrutinize expense reports.
Set a sound travel policy
"Midsize companies booked 31 percent of their flights, 35 percent of their hotel rooms, and 20 percent of theft rental cars with non-preferred vendors in 2005."
From Business Travel News
Mark Walton, principal at business travel adviser Consulting Strategies LLC, in Deerfield, Ill., recommends starting with a written corporate travel policy. Without concrete guidance on which flights to take, hotels to book and expenses to report, even the most ethical employees will unwittingly make wasteful decisions. For example, according to a June 2006 survey by Business Travel News, midsize companies make just 48 percent of their reservations online-even though travel industry research shows that companies can save roughly 15 percent by purchasing tickets on the Web.
"Travel policies can be as short as two pages or as. long as 40 pages." Walton says. In general, greater specificity means greater savings. But longer policies can also be more complex and more likely to generate employee resentment.
Once your policy is ready, communicate it to employees through formal training, and post it on the company intranet, says Sushmitha Koka, a senior research yst at business travel consulting firm PayStream Advisors Inc. in Charlotte, N.C. Companies that take such actions, she says, can experience from 33 percent to 50 percent fewer policy violations.
Consolidate your spending
Another fundamental strategy for reducing travel expenses is to book all of your flights, hotel rooms, and rental cars through a corporate travel management agency. Such firms, which typically provide both online and phone-based services, can help enforce your travel policy. More important, they provide comprehensive data on spending patterns that you can use to negotiate price breaks with preferred travel partners.
"With data comes power," says Michael MacNair, president and CEO of Alexandria, Virginiabased MacNair Travel Management Inc. For example, some airlines offer discounts to companies that spend as little as $500 000 a year on tickets, MacNair notes, but only if you can document your purchasing history. "The key is to know what you spend and convince the suppliers you can move market share," he says.
Larger companies are not the only ones that can obtain leverage in pricing. For instance, though big lodging chains are usually unwilling to bargain with midsize organizations, a particular hotel will often cut their rates for you if your employees are frequent guests.
Of course, enforcing a preferred vendor policy with employees can be tough. Midsize companies booked 31 percent of their flights, 35 percent of their hotel rooms, and 20 percent of their rental cars with non-preferred vendors in 2005, according to the Business Travel News survey. To lower those figures, Koka says, companies should discourage or forbid traveling with unapproved vendors, even to the point of not reimbursing employees who repeatedly violate the policy.
Inspect expense reports carefully
To avoid costly errors and fraud, it also is wise to closely scrutinize your company’s travel expense reports. The 2005 American Express survey found that 22 percent of U.S. companies took punitive action against employees for expense report abuse within the previous year. Few organizations have the resources to review every expense report, but financial managers should audit at least a percentage of reimbursement claims regularly, Koka advises.
Businesses can reduce expense report violations by using automated expense management systems instead of paper forms of spreadsheets. Prepopulating electronic expense reports with data from credit card issuers limits opportunities for fraud and manual entry errors. Moreover, online review and approval can slash the cost of processing a paper expense report by 80 percent or more, according to PayStream Advisors research.
Do a better job of justifying travel
Naturally, the best way to lower your travel expenses is for employees to travel less in the first place. XRT Inc., a 400-employee maker of treasury management software with headquarters in Paris, uses Microsoft Office Live Meeting to replace business trips with Web conferencing sessions, according to Mark Adams, a Pennsylvania-based product manager with XRT. "We’ve reduced sales expenses considerably by minimizing our need to travel to prospect sites to demonstrate our product," he says.
Similarly, XRT’s implementation team no longer needs to fly consultants to a ’s office for brief training sessions. "If they only need an hour or two of our time, they do not need to pay for a full day of consulting and travel expenses," Adams says. All told, Web conferencing has helped XRT cut its travel budget in half, he says.
Ultimately, however, the real key to controlling travel costs has less to do with tools than with attitudes, ZOLL Medical’s Whiton says. "We try to deliver the message to people that when you travel on company business, spend as though you were spending your own money," he says. Travelers with that mindset are a company’s best weapons against money waste.
Exercises