The Hindu Business Line : Worth going the extra mile to cut travel costs

PEOPLE travel to wonder at the height of the mountains, at the huge waves of the seas, at the long course of the rivers, at the vast compass of the ocean, at the circular motion of the stars, and yet they pass by themselves without wondering, said Saint Augustine.

Likewise, company executives too travel to do business, apart from engaging in general sightseeing and essential shopping, even as they leave the back office bean counters wondering how travel expenses tend to bloat faster than revenues.

Business travel can be an informal barometer of economic activity, notes Aberdeen (www.aberdeen.com) in one of its recent research studies titled, Best Practices in Category Spend Management: Travel. "Increased booking of airplane seats, rental cars, and hotel beds mean that companies are out getting and serving more customers."

However, when costs escalate, travel becomes a high-profile target for control, points out the 59-page study, authored by Christa M. Degnan, Research Director.

"As recently as June, a chief executive of a Fortune 500 firm was convicted of fraud for a travel and expense (T&E) related scandal, among other fiscal mismanagement," mentions the study, reminding one of a hallowed campus. As a `case study white paper' The Consequential Risk of Weak Internal Controls: Fraud & Accounting Irregularities on www.fei.org puts it, the episode was above-the-fold news.

The head of Yale University's International Institute of Corporate Governance, Florencio López-de-Silanes (also employed by the World Bank as a governance consultant), was asked to step down "when it was discovered that he double-billed the university to the tune of $150,000 for one year's travel expenses".

The white paper wonders: "It's hard to determine what is more appalling: that a crusader for better corporate governance would try to fleece his employer, or that a distinguished professor of the Yale School of Management was not aware that withholding material liabilities was a red flag in any accounting era, much less the high-alert atmosphere of SOX compliance we live in today."

A lie can travel half way around the world while the truth is putting on its shoes, warns Mark Twain!

Why control travel costs

SOX or the Sarbanes-Oxley Act requires a number of disclosures, including information on internal control mechanisms, which include controls on indirect expenses, reminds Aberdeen's report. It informs that the US pharmaceutical industry has been under fire for the entertainment excesses of its sales and marketing forces, perceived to be "driving up the cost of prescription medicines to those who can ill-afford them".

The average profit as a percentage of revenue of Fortune 500 companies, which was at 5.6 per cent in 2004, can be improved by saving on travel, says the report, citing statistics. Travel constitutes 0.5 per cent of revenue in the $1 billion plus firms surveyed by Aberdeen. And trips/reports per year are about a lakh.

"Average cost to manually process an expense report is $48; multiply that by the average number of reports and you'll see more than $4 million dedicated to pushing paper in the Fortune 500 each year," says the report. "Also, at $50 per agency booking for these trips, tack on nearly another $5 million for phone travel agent access."

A chapter on `key business value findings' speaks of astounding savings from best practice travel cost management initiatives. Overall travel budget reduction has seen 7 per cent `average improvement'; in T&E reimbursement costs reduction, improvement is 65 per cent; and for T&E reimbursement cycle time reduction shows 86 per cent improvement.

Ten lessons

Of immense utility are "10 strategies common among enterprises with the most successful total telecom cost management programs," as identified by Aberdeen's Best Practice project. "Understand current travel expenditure commitments at a granular level through online information collection and analysis," reads the first commandment.

The ability to collect information online and e-source is only getting more important, notes the report, and expects the next frontiers for savings to be hotels and meetings. "These slippery travel expenditures are virtually unleveragable for discounts without serious aggregation of information — what cities are involved, what times of year, volumes of commitments."

Second, "Centralise travel management and supplier negotiations."

An example cited in the report is of `XL Services Ltd, a $10 billion Bermuda-based global insurance firm,' which spends an estimated $18 million on travel each year. It achieved 12 per cent year-over-year savings in 2004 through a consolidated approach.

Third, "Establish a single travel policy, including booking and reconciliation procedures." Companies have to establish that using preferred providers is the company policy, not just a suggestion, insists Aberdeen.

On policy, again, the fourth lesson is, "Communicate the policy clearly, consistently, and ubiquitously to employees." An insightful example is of a healthcare company spending `$40 million a year on travel and events'; it found that "it was forfeiting 7 per cent of eligible costs savings through employee non-compliance with its preferred vendors and contracts".

Then came new procedures such as `14-day advance booking pre-approval', and the agency representatives alerting employees when they are outside policy and sending `non-compliance communications and reports'.

A corollary is the fifth strategy, "Facilitate employee adherence to policies and procedures through easy-to-use and access tools."

The report gives the example of American Medical Association. "With employees making 3,000 trips worth $1 million a year, it recently replaced its on-site managed agency with Travelocity for Business to reduce booking fees and lower ticket costs... AMA was able to slash fees per trip from $30 to $5, with 99 per cent adoption in six months."

Another case, worthy of emulation, is that of Applera which created a `TravelSmart' site on its intranet "where all of the information and tools employees need for travelling and reimbursement reside on one page."

Lesson six, "Enforce your policies," because inertia is all too common. It may shock to know that some firms use `a three strikes and you're out' rule. "The first time employees infract they are reminded of the policies, the second time they are warned that they will not be reimbursed. On the third offence, they will be out money from their own pockets," explains the report.

Rules such as these are perhaps "the villains that all the travellers do fear so much," as Speed says in The Two Gentlemen of Verona.

Seventh strategy, "Give your suppliers the business you promised them," in return for hard negotiation on discounts. Eighth, "Use your own data as the de facto standard," that is, have your own internal mechanism to capture a `single point of truth' and provide `granular level of information needed to act and react quickly to the travel market'.

"Act on the data you collect," reads the ninth lesson. Trip data can be "a key window into business insight that impacts larger corporate performance initiatives." Thus, you can know about customer profitability; and can track if the trip was "to meet with an internal team or a customer," and in the former case, try to reduce or eliminate it.

The last and tenth lesson is, ""Be open to changing policy and supplier mix based on performance, business needs, and employee feedback."

One large computer manufacturer Aberdeen interviewed for the report "puts all of its travel contracts out to bid every three years," including agreements to audit its preferred provider relationships arrangements. That keeps "all suppliers stay on their toes".

Ten `best practice case studies' are also part of the report. Each of these has important particulars on solution providers, business challenge, strategy, and value achieved. A report, therefore, you go the extra mile, to cut travel costs, with `the sinewy vigour of the traveller,' as in Love's Labour's Lost.

AccountSpeak@TheHindu.co.in

D. Murali

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