WHITE PAPER. Visibility. Better Insight Leads to Better Cost Control

WHITE PAPER Visibility Better Insight Leads to Better Cost Control

2 WHITE PAPER Executive Summary Insight and Best Practices Drive T&E Savings Many experts believe a lean, new economy is unfolding a business environment where cost control will remain an essential for success. Travel and entertainment (T&E) expenditures typically represent an organization s largest discretionary spend, with an average annual cost of $10,039 per traveler. 1 Organizations with a strong travel policy and aligned processes tend to be high-performing, and realize significantly lower costs that can range from 5% - 20% of annual spending. Solutions may be in place to provide some visibility and control over T&E expenses, yet nearly 80% of those responding to a recent industry survey reported that their organizations do not aggressively manage travel costs. 2 As they plan for new economic realities, business leaders may find it worthwhile to examine the practices of high-performance organizations that have improved visibility into and control of their T&E spending. To help business leaders understand where they may most effectively focus attention to measurably reduce T&E spending, this white paper provides background information on the importance of visibility and how it relates to three key methods used by high-performance organizations. 1, 2 Total Employee Mobility Benchmarking Report. Runzheimer International, October 2009

WHITE PAPER 3 PART I: Considerations Employee Mobility in the New Economy Today more than 50% of North American workers are mobile they travel, drive for work, relocate and work virtually. The cost of employee mobility is significant, and it ranks near employee healthcare spending for many organizations. Business travel is a key aspect of employee mobility it is an essential part of opportunity generation, business development, customer service and other activities that drive revenue growth and client retention. Leading organizations recognize that travel is an investment that can and must be managed. Profile of U.S. Mobile Worker Sales / Business Development: 23% Field & On-Site Service: 22% Executives: 4% Training/Education: 2% In the new economy, mobile employees will continue to be growth drivers, those on the front lines of revenue generation and customer retention. Source: 2009 Total Employee Mobility Benchmarking Report, pg. 5 Runzheimer International Business Travel is Costly For most enterprises, travel and entertainment (T&E) continues to be the largest controllable business expense. On average, an organization spends $5,019,500 annually for each 500 business-traveling employees

4 WHITE PAPER With T&E consuming 1.6% of revenues for the average organization, 3 leaders from finance, procurement, operations and HR are seeking best-practices opportunities to reduce these expenses. Organizations that have successfully implemented best practices typically reduce T&E spending 5% - 20%. Savings from Best Practices Based on Avg. $5,019,500 Annual Spend per 500 Business-Traveling Employees 5% Spending Reduction $268,500 savings 20% Spending Reduction $1,074,000 savings While cost savings may be generated through a range of means, many executives have relied on three key methods to improve T&E cost control: Use of benchmarking information to identify savings opportunities Centralizing control Tightening T&E policy and enforcing compliance through automation Visibility is the Key These methods are enabled by a common element improved visibility. 4 Because an organization can manage only what it can measure, improved visibility is a precursor to reduced T&E spending. PART II: High Performance Methods Method #1: Use Industry Benchmarks Internal and industry/peer benchmarking information used together are powerful tools that can quickly help most organizations begin reducing T&E costs. Internal Benchmarking Information Internal benchmarking is a necessary early step toward cost control. This information provides the baseline for gauging progress toward expense reduction objectives. The benchmarking process also increases visibility into company behavior, allowing the organization to identify anomalies and outliers that lead to opportunities for behavior change. The data gained also supports more accurate budgeting and job-cost analysis. In most situations, a useful internal benchmarking data set will include: Spending information by individual, business unit (department, division, etc.) and by trip, project, job, client or other categories appropriate to the organization Current and historical cost information for frequently-visited locations and by vendor Policy compliance information 3 Total Employee Mobility Benchmarking Report. Runzheimer International, October 2009 4 In this report, visibility refers to knowledge and insight regarding T&E benchmarking information, actual costs, patterns and trends, and policy performance.

WHITE PAPER 5 External Benchmarking Information External benchmarking information significantly expands visibility and improves understanding of cost parameters, trends, policy opportunities and peer performance. By comparing its own performance versus objective industry standards, an organization can more easily identify opportunities for improvement. To provide material value, external benchmarking information should include: Comprehensive industry cost data for frequently-traveled locations - Airfares for domestic and international city pairs - Yield (revenue per passenger mile) and market share information for all covered city pairs this information is critical for effective negotiations with airlines - City-specific hotel costs per room night for economy, first-class and deluxe properties; hotel prices vary widely between cities and by class of hotel accommodation level and this information can help the organization negotiate with hotel properties, budget more accurately, and develop reasonable daily spending caps, per diems, or guidelines for specific locations Average Daily Hotel Rate First Class Lodging (Single Occupancy) Manhattan $350 London $220 Des Moines, IA $122 } $228 Difference - Car rental daily cost information for U.S. & international cities - Local meal cost information Equally valuable is peer benchmarking, including information by size of firm and industry relating to: - Travel policies - T&E spending as a percent of revenue and related trends - Procurement practices and results - Administrative costs - Outsourcing - Travel alternatives, such as use of web and/or video conferencing tools Method #2: Centralize Control By centralizing control over T&E, an organization can quickly achieve several advantages that support improved cost control. These advantages include: Economies of scale leverage is increased when negotiating with vendors Increased visibility across the organization leading to more valid insights on daily spending patterns, policy compliance and trends to improve cost control Process improvement strengthening the organization s ability to streamline operations and increase policy compliance

6 WHITE PAPER Management Under One Department T&E programs are usually managed in accounting/finance or procurement groups as the chart below illustrates. The most optimal group to centrally manage the organization s travel program depends upon organization. An emerging trend is to have all groups responsible for managing the various employee mobility programs (e.g., Travel, Relocation, Business Vehicles, Virtual Office) reporting into the same leader; this trend brings significant benefits to mobile workers in terms of enhanced communication and process simplification as well as staffing efficiencies and economies for the organization. Departments Responsible for Travel Programs Accounting/Financing: 34% Purchasing/Procurement: 29% HR: 14% No Single Dept: 8% Corporate Services: 6% Administration: 6% Other: 6% Source: 2009 Total Employee Mobility Benchmarking Report, Runzheimer International Automate T&E Spend Management & Reporting The right travel management platform empowers centralized control. This step alone often delivers a 5% savings on T&E spending. Increased visibility is an important advantage gained from travel automation. For maximum control, the platform should provide visibility from multiple perspectives, such as: Costs per trip by traveler and costs per day this information enables an organization to evaluate transportation alternatives and to make better business decisions about the ROI of a trip Airfare segments by city pair, room nights and car rental days by city - a comprehensive system enables an organization to prepare for supplier negotiations, to benchmark, to target the right suppliers, to uphold supplier volume commitments, and to maximize discounts Cross-departmental/cross-company spending and reporting - the system should track spending by and across organizational structures so that benchmarking and policy compliance information can be shared per project spend Job and/or project costing - the system should allow assignment of costs to specific projects, jobs, clients, etc., so the organization can increase control over planning and budgeting, and measurably improve per-project profits

WHITE PAPER 7 Additional cost-saving advantages as a result of centralizing include: Process automation, which streamlines expense reporting and reduces administrative time Complete process and benchmarking integration Automation of policy enforcement for example, alerting the employee when an expenditure is outside policy boundaries and/or placing reimbursement caps on meals and hotel expenses. Optimization of corporate card rebates Method #3: Tightening T&E Policy and Enforcing Compliance A successful T&E cost reduction program relies on sound, up-to-date policies to guide employee behavior and form the primary defense against unnecessary spending. Visibility into policy compliance is essential to identifying opportunities for improvement. High-performing organizations have measurably higher policy compliance rates, compared to the industry average. Policy Compliance Rates High-Performing Organizations Industry Average 87% Compliance 71% Compliance Expense Management Automations: Process Efficiency, Greater Visibility. Aberdeen Group Improve Policy Compliance Best practices can assist an organization that seeks higher policy compliance rates. While each organization will develop policies most suited to its needs, business leaders should always examine these best practices that tend to support improved policy compliance: Estimated Cost of T&E Fraud in Organizations Revenue Estimated T&E 5 Estimated T&E Fraud 6 $50,000,000 $800,000 $35,000 $100,000,000 $1,600,000 $70,000 $200,000,000 $3,200,000 $140,000 $500,000,000 $8,000,000 $350,000 $1,000,000,000 $16,000,000 $700,000 Centralized policy monitoring and enforcement, which improves consistency of compliance Creation of reasonable, fair and understandable policies, which increases frequency of compliance A code of ethics creating, posting and training employees on the organization s values, beliefs and expectations for ethical behavior and appropriate conduct are critical to setting the foundation for ethical and honest actions 6 2008 ACFE Report to the Nation on Occupational Fraud & Abuse. Association of Certified Fraud Examiners, 2008 5 Total Employee Mobility Benchmarking Report. Runzheimer International, October 2009

8 WHITE PAPER Impact Employee Behavior High-performing organizations recognize the importance of educating their employee s on the T&E program policies to help improve compliance rates. Instituting programs and sessions focused specifically on their employees and their direct T&E program behavior is critical. Employee training for example, training is essential to help ensure all employees understand the importance of a policy requiring the use of preferred vendors Management training proper policy enforcement is critical; managers must know how to clarify gray areas in policy, adjust employee behavior and help ensure future compliance Institute a corporate card program utilizing a corporate card for the majority of T&E expenses makes it harder for employees to inadvertently (or intentionally) duplicate expenses Increase Process Automation Automating processes associated with the T&E program will also help increase the compliance rate as it removes the manual component. This helps minimize the level of errors that may occur as well as unnecessary spending. Automate T&E reporting this helps eliminate mistakes that result in out-of-policy situations Perform audits while improving process control and fraud protection, auditing also provides essential visibility into policy compliance, helping to identify: - Areas where policy compliance is unusually low, so business leaders can determine if policy changes are needed for example, meal spending policies often are difficult to enforce; an audit can provide visibility into this - Reasons for low policy compliance, which guides policy training or adjustments - Managers associated with low policy compliance issues, helping guide management training activities Visibility Enables Best Practices Best practices have helped many organizations reduce T&E spending 5% to 20%. Organizations seeking improved T&E cost control can start by first improving visibility into internal and industry benchmarks to understand current costs, spending patterns and policy compliance. From that insight, improvement targets may be set and progress measured. Insight and Guidance Serving more than 60 percent of Fortune 500 companies, plus numerous public agencies, Runzheimer International provides complete corporate travel management services designed to maximize cost savings, improve productivity, and achieve best-in-class performance. For guidance to identify cost-saving opportunities that best match your organization s goals, please contact Runzheimer International and ask to speak with a business travel representative. Call 1-800-558-1702 or visit www.runzheimer.com.

WHITE PAPER 9 Copyright 2010 Runzheimer International Ltd. All rights reserved. All content of this document is the property of Runzheimer International Ltd. and is protected by United States copyright law. No part of this document may be copied, displayed, distributed, modified, published, reproduced, transcribed, translated or transmitted without prior written permission of Runzheimer International Ltd. You may not alter or remove any trademark, copyright or other notice from the original or copies of the document. About Runzheimer International Founded in 1933, Runzheimer International serves 60% of the Fortune 500 and numerous government agencies. Recognized for providing innovative solutions relating to Total Employee Mobility, Runzheimer International is the global leader in workforce mobility programs including business vehicles, logistics, business travel, corporate aircraft, employee relocation and compensation, virtual office, and government services. 800.558.1702 www.runzheimer.com For more information, contact us at 800-558-1702 or email marketing@runzheimer.com. Copyright 2010 Runzheimer International Ltd.