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Travel and Expense Management

Calculating the True Cost of Travel

Pop quiz: which of these business trips cost the most?

receipts

Pencils down. Think you know the answer?

Sorry, but that’s incorrect. The right answer to this (trick) question is D - “Not Enough Information.” Each of these trips could be considered the most expensive. Even trickier (sorry again), each of these trips could be considered the least expensive. It depends on a few factors, including:

  1. The business traveler's schedule on both ends of the trip
  2. What options will allow her to be most productive
  3. How the costs associated with her trip are calculated

Any definition of cost has to begin with the money spent on flights, hotels, rental cars, and per diem, but that’s not where it should end. To have a full picture of its business travel expenses, a company must consider the hidden costs of a trip, not all of which are monetary. A company might spend equal amounts on two trips and deem one a bargain and the other a gross overspend. To understand why, we need to explore the concept of travel friction.

What's Travel Friction?

Travel friction refers to the adverse effects business travel has on employees. Scott Gillespie, managing partner at tClara corporate travel consultancy, first coined the term and has written about how to measure travel friction against benchmarks. Travel friction is a concept broad enough to include things like time spent fitting trips into a restrictive company policy, as well as discomfort and lost productivity on the road. In either case travel friction is an example of a negative externality: a cost not reflected by the top-line price of travel.

But how are you supposed to measure these amorphous costs associated with travel friction? Incorporating estimates of employee productivity and well-being into a company travel policy is inexact at best, and might add needless complexity to the system.

Rather than attaching a formal dollar figure to every aspect of an employee's trip, a company should work to be aware of sources of travel friction, and develop a strategy for reducing these hidden costs.

Types of Travel Friction

Employee Burnout

Even hardened road warriors feel the strain of business travel. Companies concerned about retaining their best performers have to take travel friction seriously. That might mean reducing travel load, improving trip experience by allowing more and better booking options, or rewarding employees who travel frequently with special perks. There’s no one right solution. The key is recognizing the problem before it begins to damage employee retention, satisfaction, and willingness to travel.

Lost Time and Productivity

Business travel shouldn’t get in the way of business. A cheap plane ticket might not be such a bargain if it requires losing a full day in transit. Likewise, the hotel for which a company has a negotiated discount may work great in one city, but provide few options in another. Travel deals do exist - and are worth seeking out - but cost savings should always be considered alongside convenience.

It’s also important to remember that travel friction varies from person to person. Taking a 6:00 AM flight could be the start to a full day of productivity for one traveler, whereas for another it could lead to a loss of productivity by midday. Corporate travel policy should encourage savings while allowing employees to book the trip that works best for them. By trusting employees to make sensible arrangements within a flexible and cost-conscious policy, a company can reduce both the money it spends on business trips and the friction experienced by travelers.<

Reimbursement

It’d be nice if a business traveler was done with a trip as soon as she made it back home. Unfortunately, she likely still has to deal with submitting her trip receipts. Expense management can be a headache for both business travelers and corporate controllers. Here are some questions to ask when evaluating the effectiveness of your expense management system:

  • How much time do employees have to spend on expenses?
  • How soon after their trips are employees submitting expenses?
  • How long does it take for expenses to get approved?
  • What percent of expenses are approved?

If you're thinking of adjusting your travel and expense policies, be sure to look at these best practices.

The Wrong Way to Reduce True Travel Cost

To reduce true travel cost, you have to target its two component parts: the monetary cost of travel services (i.e. trip cost), and the hidden cost of travel friction.

When a company looks to address the first part of the equation - trip cost - its initial instinct is often to tighten travel policy by setting a hard cap on allowable expenses for flights and hotels, or by requiring use of certain vendors.

One problem with tightening policy to reduce trip cost - besides the fact that the savings often fail to materialize - is that travel friction increases as a result.

<cost-of-traveler-friction

Tighter policy imposes an added layer of work on business travelers, who have to conform to a static set of rules - no matter what the specifics of their trip may be.

So stay flexible. The biggest source of travel friction is overly-rigid policy that doesn't adapt to the needs of employees. Spending limits, restricted lists of approved travel vendors, and other static policies try to force business travel savings at the expense of business travelers. Lower spending doesn't have to result in lower employee well-being. Empower travelers to make smart choices that fit their needs.

Interested in learning more about reducing travel costs in a way employees actually embrace? Check out these tips, and follow us @Rocketrip to hear about savings strategies.

All Tags: Travel and Expense Management, Travel Policy

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