The theory goes…
Micro companies are so intimate and friendly that no-one would dream of rinsing the company for unnecessary or excessively expensive trips – while large companies have enough governance in place to prevent over spending. This leaves companies in the middle somewhere between unfriendly and ungoverned…
The impact of unnecessary spend in an SME is huge relative to many T&E budgets. Avoiding 1 in 20 trips can save 5% of T&E budget, but without the economy of scale, in terms of number of trips, it can take just a few wasted trips to kill your budget.
In this chapter I cover best practice for cost avoidance and have some fun with some personalities from the past.
I had a guy who reported to me called Brian.
Brian was in field marketing and boy did he love a boondoggle. (http://www.urbandictionary.com/define.php?term=Boondoggle)
The conversation would go…
Brian: “Oli – There’s a marketing event in Dubai – I’ve seen a flight for $400 – can I go”
Oli: “We have a partner in Dubai – let’s leave it to them”
Brian: “Our partner thinks we should support them and as its really cheap – I kinda said I agree”
Oli: “What kind of return are we expecting – how many leads are we targeting and what percentage of those do we expect to close”
Brian: “Everyone will be there – it will look bad if we’re not represented”
Oli: “I’m not convinced”
…1 day later…
Brian: “Hey Oli about that event in Dubai – I’ve just sent a flight for $350
…2 days later…
Brian: “Partner X is really upset that I haven’t replied yet – they’ve made my name badge and everything”
You get the point – after 7 days nagging I’d give in.
Then the familiar process of drip feeding of expenses would begin:
- Jumeria beach hotel 5 nights $2500 (it was a cheaper flight if you stayed the weekend)
- Conference entrance fee $1200
- Entertaining clients $2000
So that $350 flight became a $8k trip with almost zero ROI. Shame on me for being nagged into it.
Brian is an extreme example of a Boondoggler – but inside everyone there are a series of checks and balances that we go through before spending company money.
Sticker shock occurs on big ticket items like the flight – but on a short haul trip 50% of expense can be from on trip incidentals…
We absolutely need to travel to build relationships and trust – but travel is expensive and needs to be aligned to company goals, otherwise you can quickly find yourself racking up a huge bill and then implementing a travel freeze…
Here are my top 5 tips for ensuring the right balance.
1. Implement a Total Cost of Trip (TCOT) calculator
– create a simple set of templates that highlights ALL cost associated with a specific trip type. You could use excel or a cloud based tool – but by informing people of the true total cost of trip – the vast majority of people can mentally weigh up the cost v benefit
2. Use a simple and consistent process.
– take the emotion out of the process by ensuring all departments and all employees implement the same, simple process. Again it could be via email or through a cloud solution and you don’t have to go all Draconian. People get it – transparency on planned spend is a good thing – just don’t make the process heavy or punitive to implement
3. Set trip goals and measure value post trip
– You have to speculate to accumulate but we often jump on a plane without really thinking ‘what do I want to achieve by the time I get on the return flight’
– The TCOT calculator will give you half the story, so institutionalize trip based goals. Some goals can be qualitative – but make sure they’re captured and assessed post trip. Don’t beat people up if the trip was unsuccessful – but keep people thinking and prevent the accidental boondoggle
4. Update TCOT regularly
– The cost of trip varies massively depending on deals and suppliers. Once every 6 months check the expense data and make sure you are informing people correctly about spending habits. If people don’t believe the cost they will ignore the warnings and you’re back to square one
5. Integrate 1-4 into the POS
– All of the above can be implemented in disparate systems for next to zero cost. However implementing all 4 of the above into one system that can influence your people at point of sale will absolutely drive incremental value. The price of travel fluctuates wildly – so having ‘just in time’ assessment of cost fully automated will make a huge difference to your cost avoidance performance.