Travel management is an important and necessary part of your business’ success - it takes time and energy for your travel manager (if you have one) or the person who is responsible for your travel to evaluate the success of your travel program. But not managing this expense line item can cost you. According to Certify, travel and entertainment expense accounts for 10-12% of a business’ total annual budget. The majority of small to mid-sized companies spend between $50K - $5 million on travel and entertainment. The travel and entertainment line item of your budget is the second-largest controllable cost for most organizations. Frequently, there are a number of hidden costs that drive expenses. But what are they and how do we find them? And more importantly, is it worth the time and effort to address these costs, change traveler habits and possibly invest in a new system to save money?
The Global Business Travel Association (GBTA) reports that negotiated discounts, better policy management and more efficient processes lead to the biggest travel savings. And in fact using a travel management company (TMC) to manage your travel needs represents a 10-20% savings in your travel and entertainment budget line item. It’s something that both staff and executives are taking a hard look at – keeping costs down. We’ve learned a lot about where costs can add up, even before you realize what’s happening. Following are the top five hidden costs to consider and then use to assess the return on investment (ROI) of your travel management program.
1. Unknown results
Let’s start here. Data management is essential in controlling expenses. Without consolidated data, the results of your travel spend are unknown and it’s unclear if adjustments need to be made. Does a $500 average domestic airline ticket expense make sense for your business? What’s the average cost of a domestic airline ticket for your typical travel itinerary? These types of questions can be asked regarding all travel-related expenses including international tickets, average hotel prices and car rental rates. Benchmark data exists from a number of sources, such as Topaz International and Certify, and can show how current costs compare with same sector businesses. Investing in a more comprehensive T&E management system can show travel spend in every expense category and appropriately evaluate the waste and opportunities in impact order.
2. Unclear value expectations
The most common challenge we see with most published travel policies is that the company’s value expectations are not clearly defined. Policies most often state that the traveler must travel coach and pick the lowest logical coach fare. Is this your organization? The “lowest logical fare” remains unclear in the complex world of airfare and travel pricing. Is that the lowest non-stop, the lowest on the travelers preferred airline, the lowest legacy carrier fare, the lowest within inflexible timing considerations? Of course your travelers should have some ability to exercise control over how and with whom they travel. If you work with a travel management company (TMC), the traveler can be directed to making the best value decision for their trip within a price threshold of the absolute lowest fare available for that itinerary. Each time your traveler selects an itinerary; this is documented for review and policy adjustment. The same holds true for cars and hotels.
Including clear expectations on pricing in your travel management policy enables enforcement, gives clear direction to your travelers, and provides authorization for out-of-policy decisions. In a world where predictive technologies push to the individual to what they like and want, your organization’s expectations must be communicated clearly, supported by management and reasonable for, and respectful of your travelers.
3. Missed preferred supplier opportunities
Small and medium-sized businesses have the ability to secure preferred supplier agreements for air, hotel, and car expenditures. But suppliers want to see travel data and spending habits to offer the best options. In order to garner preferred supplier deals, travel expense information is essential. With an effective travel management system, data is readily available regarding specific travel categories and suppliers, and missed opportunities which could impact price, comfort, and availability can be avoided.
4. Unpredictable costs
When T&E is well-managed, great data exists from which to budget costs and predict profits in a way that most closely aligns with your business model. This predictability helps run and manage your business. Conversely, when T&E isn’t managed properly, the process and timeline for submitting and expense reports isn’t clear, resulting in a negative impact to profit and productivity.
5. Inefficiencies in processing expenditures
The time and effort it takes to process expense reports, reconcile credit card bills, attribute expenses to projects or departments, understand the costs associated with trips that have been changed or cancelled, and track unused non-refundable tickets can significantly impact finance departments. Inefficiencies in how expense reports are submitted can drive up hidden bottom line costs. Plus finance staff then spends extra time to process these expenses. According to Certify’s 2015 Travel and Expense Management Trends, The #1 pain point surrounding travel and expense management is employee failure to submit reports on time; the second largest pain point? The time is takes to reconcile, review and approve. Opportunities to streamline this process are available, but the impact of this needs to be understood and communicated. This hidden cost can add up quickly, and once this data is collected, it can be used to leverage productivity enhancing systems and habits.
The hidden value of managing travel is often a game changer to many organizations. Like many business opportunities in the world today, organizations don’t know what they don’t know. Find a good teacher/partner, seek ways to collect data and strategically asses the opportunities. Most importantly, assign a champion to the task of evaluating and managing this critical line item to be sure that it’s being done correctly, and with the best interests of the company and your travelers in mind. Taking control of this second largest controllable cost from a value and productivity standpoint just may be your biggest opportunity of the year.