For finance professionals today, the pressure to re-examine costs and maximise profits has never been greater. In a climate of economic uncertainty, corporations are positioning themselves for survival and placing an even greater focus on increasing profitability and streamlining operations.
Against this backdrop, travel and entertainment (T&E) continues to rank as the second largest controllable cost after salaries among typical businesses today, with between 10% and 30% of a corporation's indirect operating costs often relating specifically to T&E.It's all about policy
Policy is an essential tool for controlling both direct and indirect T&E spend, yet experience suggests that a significant number of companies are failing to implement adequate policies in this area, or are failing to enforce a policy where it is in place.
A recent study (the American Express/AT Kearney European Expense Management Study 2003) carried out amongst 75 of Europe's largest companies benchmarked the performance of these organisations in managing their T&E expenditure.
It found that on average, companies with high travel policy compliance rates (80% or above) had total indirect costs per traveller that were 23% lower than those companies with low compliance rates.
Spending time and resources in developing a travel policy that is right for the organisation can reap benefits in the long term, as a policy that does not provide enough flexibility for the traveller or is not in tune with corporate culture will almost inevitably lead to low compliance rates and, in effect, become redundant.
Two key tools that can be employed to support an organisation in achieving high levels of travel policy compliance are travel agents and corporate card programmes. Travel agents can both advise travellers on policy, but also enforce the policy with the traveller at the point of booking. Evidence suggests that companies using travel agents both to advise and to enforce policy achieve higher levels of compliance than those who use agents for only one of these roles.
Corporate card programmes can also improve policy compliance by providing travel managers and finance departments with management information that identifies out-of-policy spend, as well as providing a breakdown of spend information to monitor travel patterns and to highlight any deficiencies in travel policy. Using this information, the company can then amend the travel policy to ensure it supports travel patterns and traveller needs, consequently increasing travel policy compliance and bottom line savings.The cost of travel
The environment in which businesses are buying travel has changed considerably in the last few years, without doubt creating a more complex marketplace to be negotiated by corporate travel buyers, but also offering some opportunities for the savvy travel manager or finance department to make significant savings.
One example of this changing market is the phenomenon that has seen the business traveller start to choose the 'no frills' option for business trips in Europe - even though in some instances, when the ticket has not been booked in advance, this can mean paying comparable fares to traditional airlines. In some cases, this also brings the added inconvenience of having to fly to and from secondary airports located further away from city centres.
At the same time, we are seeing corporate travel buyers moving away from their traditional deals negotiated with suppliers on particular routes to a more 'spot purchasing' approach, because of the risk that corporations may not meet volume targets required to achieve rebates or savings negotiated some 12 months before.
The fluid pricing of current airfares has led American Express to develop a new air travel purchasing approach - Dynamic Travel Management. In essence, this approach represents a shift in traditional procurement philosophy, promoting instead a flexible purchasing strategy of 'spot buying' based on finding the lowest logical fare for every trip, ensuring the bottom line sees savings regardless of travel volumes.
Travel is also one of the areas of corporate procurement that is benefiting from new internet-based approaches which eliminate costs for suppliers and travel management companies, and consequently the corporate travel buyer. More and more, companies are installing online travel booking and fulfilment capabilities often alongside traditional booking platforms.
American Express clients using interactive travel services obtain average airline ticket prices savings of between 10% and 20%, and 50% and 70% savings on agency servicing costs. Customers achieve these savings primarily by using American Express's online booking capabilities, which increase automated corporate travel policy compliance and ensure the use of preferred suppliers.The hidden costs
The hidden nature of administrative costs - the indirect costs that a company incurs every time that an employee books a trip, receives a cash advance or submits an expense claim - make cost savings opportunities difficult to target. Companies find it difficult to manage what they can't see. However, potential savings are walking out the door, as UK companies remain bogged down in labour-intensive administrative processes.
The American Express/AT Kearney study, which focused specifically on the indirect costs of T&E management, found that this 'hidden' cost of business travel can account for as much as 23% of a company's total travel bill. In real terms, that means companies are paying an extra EUR463 (328) per traveller, per year in administrative costs in the booking and managing of business travel. Moreover this equates to an additional cost of EUR2.4m based on an average large company T&E spend of EUR42.5m.
It is clear that an adequate policy, a high level of compliance and clear processes can support each other to drive down both indirect and direct T&E spend. The opportunities for companies to re-engineer their T&E costs and processes have never been greater. With well-controlled processing costs increasingly regarded as the backbone to achieving cost savings, these are steps that no finance professional can afford to ignore.
MANAGING YOUR TRAVEL BUDGET: TOP 10 STEPS
1 Designate a travel manager or other finance professional to oversee the implementation of a travel policy; the management of travel-related expenses; and negotiations with travel suppliers.
2 Develop a suitable travel policy tailored to the company's corporate culture, balancing the need for cost savings along with administrative demands and employee morale. The policy should be reviewed and re-issued at least annually.
3 Solicit senior management support of the travel policy and communicate it to employees.
4 Consolidate all travel arrangements through a single business travel agency. This ensures that business travellers will be offered both the lowest available rate as well as a high level of customer service.
5 Select a corporate card programme that meets the company's expense management and reimbursement needs. Issue cards to all employees who travel or incur entertainment expenses on company business.
6 Eliminate cash advances through the use of a corporate charge card programme. Corporate card users benefit from extra travel insurance and access to emergency services.
7 Switch to online expense claims in order to reduce time spent completing and submitting forms.
8 Gather data about employees' travel and spending patterns via reports generated from corporate card and travel agency MIS reports. Use collected data in supplier negotiations.
9 Select suppliers that best fit the company's travel pattern and negotiate special rates and services. A company must be able to demonstrate that its policy is enforceable and will include incremental business for a supplier and thereby qualify for future discounts or rebates.
10 Monitor travel policy compliance and the use by employees of preferred suppliers.