If you're looking to get a handle on travel and expense policy for your company, you've come to the right place. Rocketrip has a number of resources that will help you establish an effective process for managing your employees' travel booking, spending, and expense reimbursement.
Our free example travel policy takes care of the heavy-lifting and eliminates the need to write your own from scratch. It's a customizable template that can be tailored to match your organization's specific requirements.
Good data is an essential component of good management. That’s as true for managing business travel as it is for managing any other aspect of your business. But companies rarely analyze their travel programs with the same level of rigor as they do their core areas of operation. Though travel is a major expense category - typically coming in behind only payroll and rent - it’s difficult to evaluate in relation to an organization’s overall strategic objectives. What conclusion should a CFO draw if travel spend increases 5% in a year when revenue increases 7%? Does that indicate efficiency, or overspending?
The first step in measuring travel policy effectiveness is setting goals, whether that’s reducing total spend, reducing average trip cost, or increasing employee satisfaction. Next is identifying the metrics that best track progress towards these goals. Key performance indicators (KPIs) such as spend under contract, lowest-logical airfare compliance, or use of approved booking tools determine whether your company’s travel policy is working as well as it should be.
Where to Find Travel Data
Travel policy effectiveness is difficult to assess for another reason: data availability. Companies that have tightly managed programs - in which employees are required to use approved vendors or booking channels - have access to the most data through their travel management companies, or TMCs. But managed travel doesn’t make sense for every company, particularly small ones. In fact, seventy percent of business travelers work for companies that have no policies on booking channels or supplier usage.1
This means that the vast majority of companies must cobble together a picture of their employees’ travel using incomplete data captured by corporate credit cards and expense management systems. Even if a company does have accurate data on its own travel spending, there’s still the problem of converting it into meaningful insights. Knowing how much you spend isn’t the same as knowing whether you’re spending too much. That requires benchmarking your travel cost against market indexes or against industry peers. Easier said than done.
Measuring travel policy effectiveness is challenging, but worthwhile. If your annual travel budget is in the millions, finding ways to save 10% on flights or 20% on hotels has a material impact on the bottom line. Below we’ve highlighted a few common performance indicators that companies track, as well as the complications involved with properly measuring them.
Basic Travel Cost Metrics
The amount paid for travel-related expenses by period, region or department.
Total spend answers the fundamental question controllers want to know about their company’s travel program: how much are we spending? Here are a few more questions that should be considered for added context:
- What’s included in our travel expenses? Flights, hotels, rental cars usually are; per diem, client entertainment costs, or conference registration fees may also be. There are no hard and fast rules here - what matters is keeping a consistent definition.
- What’s behind changes in our travel spend? If a company’s headline travel spend number increases from one year to the next, there are several possible explanations. Employees might be traveling more often, or traveling to more expensive destinations. Spending might have increased due to market conditions, or because travelers are making less cost-conscious decisions. The lesson? Knowing total spend is just the beginning when analyzing a company’s travel policy.
Average Trip Cost
Equal to total travel spend divided by the number of trips taken. Average trip cost can be broken out to show average cost of airfare, hotel, rental car, and other spend categories by destination, time period, or department.
To be understood in context, average trip costs should be compared to relevant benchmarks found in corporate travel indexes. Be careful when choosing which data you use to make the comparison. The Global Business Travel Association warns that:
It is very difficult to obtain apples-to-apples price benchmark data. Any such data provided by Travel Management Companies or third parties should be viewed as very rough indicators. Care must be taken to properly calculate the undiscounted (a.k.a. pre-discounted, or gross) spend.2
In other words, the price data that goes into a corporate travel index comes from a TMC’s clients, who may have very different travel policies than yours. Their travel costs depend on specifically negotiated flight and hotel rates. If, for instance, a large company’s employees make hundreds of trips each year between a specific city pair, the company will likely be able to report a significant, volume-based discount on airfare and hotels. Unless that description also fits your company’s travel profile, a straight-up comparison will be misleading. What’s more, reported travel costs might differ from what the company actually spends, since the TMC data doesn’t include trips booked outside the official channel (out-of-policy “leakage”).
Traveler Behavior Metrics
A company’s travel costs are determined by the thousands of individual choices made by its employees - the airlines and hotels they use, the number of days in advance they book, or even how often they avoid unnecessary trips by conducting business virtually. Taken together, this is the “demand” side of the travel equation, and is hugely important. But when analyzing their travel policies, companies often focus on supply alone - that is, on the cost of procuring travel services.
The supply side of the equation is seen as being easier to measure and manage. What’s more straightforward: knowing your company’s negotiated rate with a given vendor, or understanding why some employees choose to use that vendor while others make their own arrangements? The performance indicators below give an idea of how employees are actually traveling, and how that may or may not conform to a company’s official policy.
Approved Vendor Non-Compliance
The percent of total travel spending that goes to airlines, hotels, and vendors other than those approved by company policy.
Companies use lists of approved vendors to ensure that business travel meets certain cost and quality standards. An approved vendor policy might require use of brands with which the company has negotiated discounts based on projected total spending, or it might be an ad hoc list of acceptable known travel options (e.g. On business trips to San Francisco, travelers should stay at the Marriott Union Square).
Requiring use of pre-approved vendors can be useful, especially for companies with large enough travel volume to secure discounts on their negotiated rates. But a high compliance rate isn’t an end in and of itself. Employees go outside the official policy because they feel it doesn’t provide adequate choice, or they can make cheaper arrangements on their own. Rather than force travelers to conform to rigid policy based on static spending limits and vendor lists, we recommend creating a flexible structure of cost control, then allowing them to book the trip that fits their needs. You can read more about how Rocketrip’s budgeting and reporting tools fit in with customers' existing travel programs here.
Cabin Non-Compliance Rate
Air and rail tickets purchased in a higher class than allowed, as a percent of total tickets purchased.
Business class and first class tickets are usually more expensive, so a high cabin non-compliance rate is an indicator of potential savings. If employees are choosing premium fares for which they’re not eligible, it might be a sign that your travel policy is confusing. Make sure employees know on which flights, if any, they’re entitled to an upgrade (e.g. flights above a certain number of hours, or on international routes).
Average Advance Booking Date
The average number of days prior to departure that employees make travel arrangements.
Airfare is generally cheaper the farther in advance it is purchased, so encouraging employees to make their travel arrangements as soon as possible can lead to savings. Some companies require trips be booked a minimum number of days in advance, 14 days and one week being the most common standards. However, there's a limit to the potential savings from advance purchase. Ticket prices sometimes drop close to the departure date, and if a business traveler has to cancel or change her trip, the fees will likely outweigh the savings from locking in a low airfare far in advance. So companies should also measure their re-booking rates, and avoid static rules mandating certain purchase windows.
Cost of Managed Travel
The percent of total travel spend that goes to TMC fees.
Though some companies find that a managed travel program is the best way to control costs, support employees during the booking and expense reimbursement process, and capture actionable data, this solution is not right for everyone. One reason is cost. TMCs charge service fees for every trip they book on behalf of employees. At $20 or more per reservation, corporate travel agent fees can eat up a significant portion of any savings from negotiated rates.
The percent of travel spend that goes through approved and trackable channels such as a TMC or online booking tool.
A high level of booking visibility means a company is more likely to have the data required to analyze and improve its travel policy. However, requiring employees to book their trips in a certain way can create friction, because many employees prefer to book business travel as they do their personal travel, using their favorite websites and apps to find the best deals. Traditional travel management attempts to crack down on this behavior because it’s a form of out-of-policy “leakage.” But use of the open market is not the problem: it’s often cheaper and easier for employees than going through a formal travel booking platform. What’s important is having a system in place for tracking all travel spending, regardless of where it occurs.
Oversight and Flexibility
Effective travel policy requires effective measurement of key performance indicators. But unless you understand the limits of your data, the conclusions you draw might be misleading. The desire for greater oversight tends to push companies to more tightly managed travel solutions, regardless of fit. Employees become disillusioned with the loss of flexibility, and the ultimate goals of travel policy - cost savings and employee satisfaction - get lost.
This post is part of Rocketrip's series on business travel overspending.
1Phocus Wright, 2011.
2GBTA, Key Performance Indicators for Managing Corporate Travel, 2012.
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