Expense Management Solution:
Given the rise of globalization and the competitive nature of business, enterprises of all sizes are conducting more and more business nationally and globally. Business travel is an expense many companies encounter and is seen as a part of conducting business. On average, Aberdeen Research found that travel and entertainment (T&E) expenses account for between 8% and 10% of total operating expenses. The actual amount can range from $50,000 to more than $100 million a year for some of the larger corporations.
Considering it's an expense that is not core to nearly all companies, ideally this category should be managed extremely efficiently. A formal and successful program will allow any savings to directly hit the bottom-line while reducing time spent on making travel arrangements and reporting expenses so employees can focus on the really important strategic initiatives. This report focuses on the challenges companies face in efficiently managing this expense category. Survey respondents from 296 companies gave us insight into some successful strategies and best-practices that have been implemented. The data collected allowed Aberdeen to benchmark respondents and determine how and where topperforming companies are successful.
Key Business Value Findings
The biggest challenge facing finance executives and travel managers is the lack of compliance with T&E policies. On average, approximately 20% of T&E spend is out of policy. In some cases, executives were surprised to find that company T&E policies were regarded more as "guidelines" that employees inconsistently adhered to or outright ignored. Therefore, being preventative rather than detective in enforcing policy is a critical step forward. Another challenge is the level of visibility into T&E spend. Aberdeen found that more than 40% of enterprises use systems and processes that are only moderately automated and that vary throughout the company. In terms of strategic actions companies are taking or planning to take, respondents reported prioritizing the adoption of technology to improve visibility into T&E spending (44%) and improve expense tracking and reconciliation (34%). Additionally, there are efforts to improve communication of corporate policies.
Implications and Analysis
A key finding in this research study is the increasing interest in an end-to-end T&E solution that incorporates both travel-booking/planning and expense management and tracking. Essentially, this includes everything from pre-trip approvals to reimbursement/card payment services and auditing of expenses. Survey data shows that growth in usage of an integrated T&E solution is significant. Currently, 19% of respondents are using an integrated system, with an additional 26% planning to adopt an end-to-end solution by 2008. Another key finding involves expense management solution, which are already widely used (43%); however there is also considerable growth with another 18% planning to adopt.
Best in Class companies were found to significantly outperform the rest of the sample, largely due to the process efficiencies gained through automation (Figure i). These companies are able to achieve reimbursement cycle times (creation of expense report to payment) of less than five days, compared to 15 days. BIC companies also have significantly reduced costs in terms of processing expense reports, and transaction costs when booking travel.
Additionally, Aberdeen Research has mapped out a total cost management (TCM) lifecycle as it applies to the T&E category. This framework involves the combination of standard sourcing and compliance procedures with process automation, improved data management and spend analytics to manage the total cost of travel and its associated supplier relationships holistically. Just like any other spend category, the basic principles of effective procurement apply for T&E expenses.
Recommendations for Action
- Understand and analyze where and how your company is spending on travel and entertainment and identify the sources of data, (E.g., corporate card spend data)
- Centralize management of T&E and standardize processes for booking travel reporting and reconciling expenses.
- Utilize automation technologies for booking and planning travel as well as managing expenses.
- Collect data on process efficiency and set targets.
- Improve communication of corporate travel policy and solicit feedback to improve policy.
- Enforce and monitor compliance to policy by being preventative rather than detective.
- Integrate tools used for travel booking with your expense management solution, reimbursement tools, and corporate card programs.
