Calculating the total cost of a trip is a tricky business. Alex Blyth asks buyers and suppliers if there is a perfect solution
A TRAVEL BOOKER waves his chief executive off on a business trip. He has booked the taxi to the airport on account, paid in advance for the flight as an online purchase, booked her into a hotel chain where the company has an account, and ensured she has her company card with her so she can pay for meals and other incidental expenses. He waves her off and settles back down at his desk confident that, through careful planning, he has calculated the total cost of the trip.
However, on arriving at the airport the chief executive tips the taxi driver with cash and gets a receipt. Then she decides she would like priority boarding so pays for that on her company card. On arriving at the hotel she discovers that her room overlooks a busy street, so she asks for it to be changed. The hotel moves her to a more expensive room and adds the difference to the final bill. Then that evening, she pays for dinner with clients but the restaurant does not accept her company card, so she pays for it with her personal credit card.
Already, within a day, the carefully laid plans of the booker are in disarray. He has to process receipts, both cash and credit card. He then has to adjust the total cost based on increased account spending as well as these incidental costs.
A GROWING PROBLEM
Two trends in the travel sector are making this scenario an even greater challenge for travel buyers and bookers. First, as competition among airlines and hotels continues to intensify, more of them seek to pull in bookings by unbundling their products so they can offer low headline rates.
Sam Welch, head of account management at BSI, says: "This means bookers and buyers have to be even more vigilant about the unseen costs of travel. In hotels, room-service tray charges, car-parking fees, internet access and early check-out charges can still go undetected."
Second, since the recession more providers have been willing to offer discounts for long-term deals or bulk purchases, making it more important you have a clear view of your total spend. If you are only aware of 50 per cent of that spend with an organisation, you have only half the buying power you could have.
In its European Indirect Spend Management Study 2011, American Express analysed the expenses spending of 162 companies. It found that by following best practice, including achieving a clear view of the total cost of a trip, those companies were able to reduce their expenditure by 5 per cent. This figure was not all in travel, but with travel comprising a sizeable proportion of any company's spending, in just 162 companies that 5 per cent of savings equated to €900 million a year.
For many companies the solution to date has been to supply travelling executives with company credit or charge cards. John Sharman, CEO of Tuxedo Money Solutions, advocates his firm's 'eccount' as the best way for businesses to control and monitor traveller expenditure.
He explains: "The travel procurement manager loads the eccount with funds and distributes prepaid cards to executives. They are free to load, there are no transaction fees and they can be used at 30 million locations worldwide."
He continues: "Companies such as Waverley Blinds and Management Systems Modelling have found that the best way to achieve a clear view of total trip cost is to keep all expenditure in one place and discourage employees from using more than one method of payment on a business trip. If everything is paid for on one card then the cost is easy to calculate and, with a prepaid card, funds can be added immediately if it looks like you have underestimated expenditure on certain business trips."
However, Brendan Walsh, senior vice president and general manager at American Express Europe, argues that while using cards is a crucial first step in the process, it should be supplemented with three checks. "Companies should set up 'before the event' control checks, which actively scan and flag deviations on a real-time basis using suitable thresholds; they should carry out spot audits; and they should insist on transparent data from their suppliers," he says.
Welch at BSI is also not entirely convinced by the prepaid card solution. He argues that executives will still buy extras with cash and spend on their own cards and then further down the line submit expenses claims, which will add to the total cost of a trip. He says: "Businesses that want to cut their travel spending need to beware the 'out of sight, out of mind' spending that can occur alongside company cards. The business reimburses employees at a later date, but finds itself unable to see where its travellers are spending their money. This weakens their negotiation position and makes it more difficult to achieve cost savings."
BSI offers its clients such as E.ON, Fujitsu Services and Tesco a total-cost-of-stay calculator. "This gives them consolidated booking and payment data and far greater line-item detail than they receive from credit cards," he explains. "If you know that 85 per cent of your travellers use the internet and 5 per cent use car parks, your negotiation priorities are clearly set."
John Moss, head of services sourcing at Fujitsu UK and Ireland, endorses this approach. "We work closely with BSI to reduce our accommodation and meetings spend," he says. "We use BSI's total-cost-of-stay formula as part of this process to formulate the ranking. We find it extremely valuable when reviewing the total cost of stay and looking at individual elements such as wi-fi and car parking."
ANY TIME, ANY PLACE
A key challenge with expense management tools is ensuring that employees actually enter their expenses through them. For this reason a growing number of organisations, such as De Beers, Rio Tinto and Essex County Council, are investing in online tools, such as that offered by Spendvision, which pulls together pre-booked and credit card data alongside incidental expenses, that employees can enter online from anywhere in the world.
Shane Bruhns, COO of Spendvision, says: "Being able to manage travel, card, cash, voucher, invoices and even mobile payments from a single interface really improves visibility of spend. This allows for more effective management of travel, identification of misuse, improved vendor discounting and consistent analysis."
He argues that the online model is the future of this type of tool. "It's quicker, easier and more accurate, and allows you to see the total cost of each trip and compare planned and actual spend," he says. "Transactions can be coded online, receipts can be uploaded and this can all be linked to the original requisition. This not only gives complete visibility of total trip cost, it also saves time for the approver as they can easily see that transactions are linked to a certain trip and are within approved spend."
Last February, expense management firm KDS launched its Executive Suite, a management dashboard that promises to present all total-trip-cost information in a single dashboard, and to even offer predictions on future spending.
Speaking at the launch, KDS chief executive Yves Weisselberger said: "The [Executive Suite component] Foresight early warning system follows and predicts trends to provide advance warning of forthcoming problems. If company targets are not going to be met by year-end, Foresight can recommend practical, pre-emptive corrective measures."
The other significant recent development has been the move towards travel expense management apps. Expense management giants KDS and Concur already have mobile expense management apps, but the need to keep up with expenses while on the move has filtered through to everyone offering these services. Just like wi-fi in hotel rooms, so smartphone apps need to be available for almost every move a traveller makes. WebExpenses offers online expense management services to more than 300 organisations, including Woolmark, Swiss Post, Fat Face, Museum of London, JCB and Berkshire East Primary Care Trust, and it claims that by replacing their paper-based expense systems with WebExpenses, these organisations can reduce total processing costs by 50 per cent. Its latest innovation is a smartphone app.
Sanjay Parekh, managing director of WebExpenses, says: "We are constantly evolving our solutions to make it easier for bookers to gain a quick, clear view of total trip cost, and over the coming months we will be launching our smartphone apps, starting with the iPhone. These will allow users to enter expenses on the go, making efficient use of travelling time and ensuring receipts are processed before they get lost."
THE CASE FOR CHANGE
Given that these total-cost solutions can cut administrative expenditure, plus add weight and focus to supplier negotiations, it seems remarkable that more companies have not yet invested in them.
One that has is insurance firm Catlin Group, which in 2006 implemented Infor's system in an attempt to gain a better understanding of the total cost of the trips taken by its 600 underwriters. Damian Paul, finance operations manager at Catlin, says: "The system provided us with more accurate, more easily accessible information on company spend, and within six months we were seeing a return on our investment."
So why don't more travel bookers follow suit? Susan Lancaster, director of UK and international client management at HRG, believes that the greatest obstacle tends to be finance departments. "Implementing a system which will offer a good view of the total cost of a trip requires buy-in from many parts of the business," she says. "And those in the finance department are often worried that it will involve them changing their entire systems."
She adds: "The fear is unfounded, and it can stand in the way of a business making major cost savings. The average saving for our clients, just on the reduced administrative burden, is a headcount of 50. With a £30,000 salary per person, that's £1.5 million a year saved by the business. That's before you even start renegotiating with suppliers, but now armed with the extra information about exactly how much you're spending and where."
Total cost of trip is admittedly a moving target where predictions and calculations are concerned, but any buyer will agree there are ways of diminishing those shock receipts and extra expense claims. Keeping on the ball with innovations in the market place, and constantly questioning what suppliers, specialist expense management companies and your TMC can offer you, will make a difference to the bottom line.