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- July 21, 2016
- Ethan Laub
Is your company serious enough about managing travel and expenses? According to most sources, T&E spending accounts for roughly 10-12 percent of an organization's budget, making it the second largest indirect expense after payroll. But unlike payroll, T&E is easier to control, and to dial up or down as needed. And unlike other expenses such as raw materials, there are ways to cut T&E costs that don’t hurt revenue generation.
Large companies tend to have this more under control, because they have dedicated teams with years of experience working on these types of programs. Unfortunately, many small- to mid-sized companies are so busy growing that they haven’t found time to create a comprehensive travel and expense management program that would let them do that.
Many SMEs allow employees to book business trips on their favorite websites. On the expense side, many still use manual and Excel-based expense reporting systems. They may have a few policies, or checked a few boxes for compliance, but they haven’t addressed everything they need to. There’s little to no visibility into spending patterns, making it impossible to control expenses, or negotiate deals.
As your company grows it should be a goal to establish a formal T&E management program, based on a combination of services, technology, and policies that govern this important spend category. This doesn’t have to be a huge undertaking, or require a large, specialized team. In fact, when you’re first starting out, that might not even be the best idea. You don’t have to swallow this all in one bite; you just have to get started. Here are some things to think about:
1. Cover ‘T’—and ‘E’
You need to put something in place that covers both sides of the equation—travel and expenses. Between 40-60% of T&E spending typically falls under flights, hotels, and ground transportation—items that could be booked through a corporate travel agency or booking tools.
Meals, taxis, mileage, tolls, parking, incidentals—all of those things typically go straight into your expense system. If you only have a travel agency but not a good expense system, or vice versa, roughly half of your spending won’t have adequate processes or controls around it.
2. Consider your company’s culture
I’ve seen companies bring in finance people who write 50-page T&E policies without ever attempting to understand whether the culture will support that. If you’re starting from almost nothing, you’re going to want to be extra sensitive to the culture on the first pass.
Interviewing and meeting with different key stakeholders is vital to understanding how things are done, and how sales people, executives, travel arrangers, and others are likely to react to a new set of rules. This can’t be an academic exercise. It has to represent, and win the support, of the people who will ultimately be asked to follow it.
3. Make it easy to digest and simple to follow
User adoption should be the number one goal. A typical T&E policy is going to cover the rules by department and position, ranging from airfare, car rentals, hotels, and so forth. It will specify preferred booking channels, preferred suppliers, duty of care, etc. The challenge is finding a balance between making the policy easy to digest and thorough enough to not omit critical details.
It’s best to err on the side of a less cumbersome approach, especially if it means the majority of the company’s employees will get behind it. It’s less about the document and more about creating some parameters to extend whatever you might already have in place.
4. Find the right travel partners
Is your company online-oriented, or more “high-touch?” Is it important for you to have a pre-trip approval system? Would your employees prefer to work with a single travel agency or use a single booking tool, or would they rather have more flexibility? These are things to think about when selecting partners.
For example, if you’re a high-end investment bank whose employees are constantly on the road, they may want to work with an agent who knows their names and can do complex, customized itineraries. On the other hand, if your company’s travel needs are considerably less involved, or if your budget is limited, an online booking tool may be a perfectly acceptable solution.
Do you have employees spread out across a variety of markets, or working in high-risk destinations? Then partnering with a travel provider with particular market expertise, or that specializes in duty of care, may be essential.
5. Drill down into the travel value proposition
A key consideration when choosing a travel partner is to ensure access to the best possible pricing. And by “pricing”, I don’t mean travel agency fees -- while important, they typically account for only 3-5% of a company’s total travel expenses. Nothing comes back to bite a travel program worse than when you incorporate a new “preferred” travel provider, only to have people complain that they’re finding lower airfares and hotel rates on consumer websites.
Not all travel providers are created equally. Some may have better supplier relationships, or participate in consortia that do. Others may have access to low-cost carriers or hotel properties that aren’t part of the global distribution system. Evaluating travel providers to ensure that they have the travel content you need, based on your key markets and destinations, is critical.
6. Don’t forget analytics
Travel analytics are a powerful and essential component of your program. Travel management doesn’t end after the booking takes place; it ends after the trip has been completed, the expense reports have been filed, the numbers have been crunched, and analytics have been applied to optimizing the process.
How can you use analytics? Let's say that a year into your new program, it becomes clear that your company needs to drastically cut travel costs. Your travel analytics can show you where the fat is -- how much is being spent on revenue-generating travel (i.e. sales and customer meetings) versus non-revenue generating travel (i.e. internal meetings). A company can selectively cut-back on travel based on the purpose and revenue impact of a trip.
On the flip side, for growing companies that are competing for talent, they can use travel analytics to find cost-effective ways to improve their employees’ travel experience. For example, a company might look at its mix of airline tickets by cabin class, and say, “It will cost us X if we allow our folks to fly premium economy instead of regular economy if they travel six hours or more.” That could mean a more comfortable experience for employees at a reasonable cost for the company.
Lastly, analytics are important once a company gets to a point where its spending is significant enough to do its own sourcing. Aggregating and analyzing your data can be vital to identifying your top travel suppliers and negotiating better deals.
7. Determine the best way for employees to pay for travel
How you pay for your employees’ travel is a critical component of any T&E program. Here, too, a one-size-fits-all approach seldom applies.
Some companies may have a culture where employees prefer to pay for travel out-of-pocket (to earn points) and then get reimbursed. Others may issue corporate cards to all traveling employees, so they don’t impact their personal finances or feel like they have to “float” the company money.
It’s up to you to decide, but consistency with your company culture is key to smooth adoption and employee satisfaction.
8. Invest in a good, user-friendly expense management system
An automated expense-management system brings all of the pieces together, from both a spending and reporting perspective. Whether it’s booked through your travel provider, outside of your travel program, or incurred during the trip, all expenses will ultimately flow through this system. As with your travel provider, your expense management system should be user-friendly and make it easy for employees to stay within policy by guiding them dynamically through the process. It should also contain rich spend analytics that help inform sourcing and policy decisions within your company.
9. Start smaller, go farther
Just because you don’t have a large team or in-house expertise doesn’t mean you can’t enjoy the benefits of a solid travel and expense management program. The keys are to understand your company’s culture and key stakeholders, and to build a policy and program that fits with that culture. This is the best way to achieve full user adoption, strong employee satisfaction, and to meet your business goals at the same time.