Managing travel for an entire company -- such as specifying preferred hotels to stay in, requiring everyone to fly coach, and setting a per diem for meals and other expenses -- can be essential to the bottom line.
By Inc. staff | Oct 28, 2010
In 2010, global business travel spending is expected to total $896 billion. That's up 6.2 percent from the recessionary low of $844 billion in 2009, according to a study published by the National Business Travel Association (NBTA), which represents more than 5,000 corporate travel managers and travel service providers.
In this economic climate, businesses are taking pains to manage expenses and travel is no exception. By implementing a managed travel program -- one that is "carefully conceived and consistently enforced" -- the NBTA says companies can reduce travel costs by at least 45 percent or more compared to those that don't.
"Managed travel is a set of long-established best practices that control the way employees purchase travel in order to create a good balance of comfort and convenience for them and, at the same time, the savings and the safety the employer needs," says Tom Wilkinson, president of TRW Travel & Expense Management, LLC., a consulting firm. "Travel is a unique commodity. Every trip is different, involving a different place, a different time, and different reasons for it. But you need to create rules to guide travelers to reasonable choices because there is a great disparity between the most economical and the most expensive choices."
The article below will detail the key components of a managed travel program, the benefits of managed travel to employees and employers, and how to enforce policies.
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The Benefits of Managed Travel
The most important step in managing travel is requiring all reservations be made through one or more travel agencies or travel management companies (TMCs). This is not always popular with employees. Many have frequent flyer or other loyalty programs. They like the flexibility, comfort, and points involved with choosing their favorite airlines, hotels and even car rental companies.
Despite some initial opposition, there are a number of compelling reasons for small and mid-sized businesses to start a managed travel program.
- Cost avoidance. The biggest driver for businesses to start consolidating and managing travel is the bottom line. By ensuring that the lowest fares and rates are found -- and booked -- businesses can reign in travel costs. "We call it 'cost avoidance'," says Kevin Maguire, NBTA Chairman and the travel manager for the University of Texas athletics program. "Even badly designed managed travel programs can save 10-12 percent of travel costs and good programs can save 50 percent or more."
- Management controls. Many managed travel programs automate the travel process from the point of reservation to the paying of expenses. This allows managers to receive travel spending data on a timely basis so they can track who is going where -- and whether they declined a cheaper airfare to avoid a three-hour layover in Detroit. Many automated systems allow managers to approve trips before they're booked, so costs are assessed before it's too late. In addition, for larger companies, these types of financial controls meet the level of scrutiny specified in the Sarbanes-Oxley act that Congress passed to beef up corporate governance and responsibility.
- Security and safety. These days, natural disasters -- from Hurricane Katrina to the Icelandic volcanic ash -- can impact travel. Businesses have heightened their need to know where employees are at any given time, and specifically to help manage risks in the midst of a potential crisis. By having one go-to travel agency, it's easier for organizations to track down their traveling employees, Wilkinson says.
- Preferred partnerships and rates. By routing all reservations through a centralized agency or TMC, businesses -- even small ones -- are better able to get a complete picture of their travel spending. This helps them negotiate preferred partnerships with airlines, hotels, and other travel companies. These partnerships can often lead to better rates. But you need to have good data in order to negotiate these terms. "If you go to an airline or hotel and say I want the best rate you will give me," Maguire says, "the supplier is going to come back and say, 'How many days did you spend with us last year?'"
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The Elements of a Managed Travel Program
Managed travel can touch every aspect of a business' travel expenses, from chauffeured cars, hotels, airlines, charter companies, bus companies, conferences, meeting and events. "The more you can show them that your travel program is managed, the more they are often willing to provide you with a better partnership," Maguire says.
There are four fundamental components to implementing a managed travel program, according to Wilkinson.
- Establish a travel policy. It's important to develop a set of rules to guide travelers at your company and then communicate these rules regularly to the troops. The guidelines should spell out preferred providers, the class of service to pick, per diem rates, and other basic guidelines. Get into some specifics where appropriate. As a normal source of business you don't want employees to spend all day in an airport that is not their final destination, but he says that you may want to specify that a layover is appropriate if it saves more than $300 off the airfare. But be realistic. "Small companies will sometimes throw in Draconian rules that no one pays attention to and that they can't enforce," he says. "No manager is going to require an employee to spend six extra hours in Detroit on your way to Fargo to save a few dollars."
- Require use of designated travel agencies. One of the cornerstones of any managed travel program is to require travelers to purchase travel through one or more designated travel agencies, TMCs, or through the company's travel manager, Wilkinson says. By centralizing the travel, managers will get regular reports that provide an overview of the company-wide travel spend, in addition to details about where people are going and whether they are complying with travel policies and making good choices. Some companies are also now requiring that employees use designated online travel tools to book their travel to help ensure compliance, Wilkinson says.
- Institute a corporate charge card program. All the top credit card companies offer corporate card programs. The advantage for a business is that if everyone participates in the same card program, all employee charges across the organization are reported back to the company. The company can generate reports and drill down to understand how much employees are spending on airfare, hotels, meals, entertainment, and other travel expenses.
- Automate expense management. There are a number of software vendors these days offering products to automate expense reporting. If everyone uses the same corporate credit cards, the data can be fed into the software tools. This way, when employees return from business trips, they can open up their expense reports and their expenditures will already be entered in the tool. The expense report can then be routed to supervisors and the entire approval process can be automated, Wilkinson says. While vendors such as IBM, SAP, and Concur make travel expense reporting tools for larger companies, a number of companies are catering to small to mid-sized companies, including Ariett Expense Net and Rearden Expense.
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Enforcing Managed Travel Rules
To find out more about business travel policies, the NBTA, along with Egencia (Expedia's business travel arm), commissioned a study performed by TRW Travel & Expense Management. The online survey was distributed in April 2010 to more than 2,000 organizations in the U.S. and Canada, ranging from companies spending less than $1 million per year on travel to those spending more than $50 million per year or more.
The study found that while instituting travel policies is the most effective way to contain travel costs, there was a divide on how businesses enforced these policies. The divide is between whether these policies should be considered mandates or guidelines. According to the survey, 62 percent of respondents said that travel policy represents "guidelines that employees should observe but that allows for exceptions." Meanwhile, 35 percent said that their policy states "rules that employees are required to follow as a condition of employment." This is often referred to as a "mandate."
"In the real world, a mandated program would be best so that everybody is on the same page and everyone follows the same guidelines and the requirements are all the same," Maguire says. "In reality, while mandates are still probably the best, very often policies tend to have flexibility. For example, upper management in many cases won't be required to follow the same rules as the rest of the work force."
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