Although travel expenses account for a significant – and rising – portion of a business’ s operating expenses, it remains one of the most difficult to manage or control.
This results in unnecessary costs, says Warren Tanner-Ellis, general manager, Travel Management Solutions at MWEB CommerceZone, a provider of hosted e-Procurement solutions and services. “These costs can amount to as much as 8% to 10% of total overhead expenses according to recent research undertaken by the Aberdeen Group*”
“One of the main problems is that travel costs, like entertainment costs; are unlike other expense categories that are controlled by the procurement department. “In many organisations, its not unusual for employees to spend company money up-front at their own discretion. In fact, many employees believe they are saving the company money by booking their own air tickets on the Internet, either using their own credit cards and then claiming expense back from the company, or using their corporate credit card.”
“The issue here is that this common practice often results in out-of policy purchases if the company has a purchase policy for travel and entertainment. “The Aberdeen research revealed that 94% of respondent do have such policies in place. “However, many executives and employees regard these policies merely as guidelines; that are inconsistently adhered to or outright ignored. In fact, even in the best companies from a travel and entertainment procurement best practice perspective, over 20 % of this spend is out of policy,” he says.
Compliance the big issue:
“As is the case in most procurement categories, out-of-policy purchases generally result in higher than necessary expenses for companies. Lack of compliance with policies is a primary challenge to the success of a travel cost management programme. Sourcing and negotiating with travel suppliers mean nothing without that compliance”, Tanner-Ellis adds.
He maintains that one of the best and most effective ways for companies to improve compliance with their travel and entertainment spend policies, would be to make travel booking and expense management processes easier to comply with as well as to monitor and manage.
What to do about it? Adopt technology
Most companies facing the challenge should adopt technology to improve travel and entertainment spend visibility as well as to improve expense tracking and reconciliation.
Not only would this help control spend, it could also make it easier for companies to leverage volume discounts and gain stronger negotiating positions that will eventually lead to sustained savings and more strategic business relationships, Tanner-Ellis concludes.
* Research for the August 2006 ;Travel and Entertainment Expense Management; report involved almost 300 enterprises from around the world, with procurement, finance and travel executives responding to questionnaires. Just over 60% of respondents were from North America; 23% from EMEA; 12% from Asia Pacific and 4% from other regions. Companies surveyed ranged in size from those with annual revenues of US$1 billion or more (42%) to those with annual revenues of less than US$50 million (20%).