Do corporates consider travel to be a cost or an investment?

White Papers 08 May 2018

Travel managers have traditionally been encouraged to keep their travel costs under control.

That premise is being challenged by travel management companies which believe travel should be seen as an investment instead of a pure cost. After all, how can a business grow and achieve its goals without business travel?

In many company structures today, travel remains a fixed cost that sits within the responsibility of the procurement department.

Very often, the procurement managers who are responsible for a company’s “indirect” purchases, such as stationery, insurance, coffee – all those items that are considered the “fixed cost” of doing business – are also responsible for travel. The business objective of these procurement managers is to keep fixed costs as low as possible.

However, it could be argued that the volume of travel – and the quality of that travel –cannot be managed as a fixed cost because travel can be very variable, depending on the company’s goals, culture and structure.

FCM Travel Solutions believes that corporate culture and strategy are underestimated when people assess the value of travel and that the expected ROI from a trip should be defined in advance.

However, the reality is far from ideal. Trip decisions must be made quickly because the fare is likely to rise. The corporate attitude towards cost is dictated not only by company culture but company strategy. You need to know where the company is in its own life cycle. If the company is acquiring or about to be acquired, cost control is vital. However, if a company is going through an expansion phase, it has to be more relaxed about costs.

Within a company, different people will look at travelling with different objectives in mind. But the proliferation and wide availability of data mean that managers are now able to cost roughly every proposed trip once the dates and duration are known. After all the average cost for a flight between city pairs plus average accommodation rates and subsistence allowances are known.

A fixed cost approach may better suit budget setting and management. However, if the company strategy is expansion, the budget for travel for sales team members is likely to vary – and vary upwards.

If you link traveller spending to strategy, you will be able to analyse return on investment much more easily.

A recent report from technology company Amadeus, Managing Every Mile, shows that financial, strategic, HR, risk mitigation and efficiency are all elements of corporate strategy that travel managers should take into account. Some companies are beginning to consider these influences on travel spend but industry sector will have a heavy influence. Those companies that recharge travel expenses won’t be looking too hard at the relationship between travel spend and trip outcome. But, there are companies that will view travel as an essential element in their growth strategies. Those strategies must be set at a high level and cascaded down.

It’s very difficult to control lots of travellers and lots of trips. For travel managers to connect the cost of travel to its outcome means working in partnership with various internal teams as well as the travel management company, like FCM Travel Solutions.

This is a very different proposition from using pre-trip approval as a tool to determine whether permission to travel should be granted.  It would be costly to deny permission to travel at the booking stage. Travel managers need to understand whether they are looking at different departments in the same way or differently.

Members of a sales team will always be more able to quantify a benefit while for others it is more difficult. However, just because a trip is being made by someone who works in a non-revenue-generating department such as, say HR, does not mean that it is without value. The difference is the ability to measure and demonstrate corporate benefit.

Some meetings will be more unproductive than others, but if a client wants to see you, you have to go. Internal meetings may not be vital to the month’s bottom line but managers must think they’re important for a reason or they wouldn’t be planned.

On the other hand, in some companies travelling for internal meetings is not considered important and believed to be dispensable. Others try to manage this by having web meetings monthly and an annual face-to-face team meeting. Company culture will dictate the travel tactics.

Travel can get very complicated because every trip will have different cost – and benefit – variables to measure. But improvements in data collection allow us to apply formulae which can give a company the approximate cost of all planned trips. It should not be beyond companies to work out a scale of benefits based on a company’s culture and strategy as well.

Because the business sector, cycle and culture affect strategy so much, an ROI measure cannot be developed as an industry-wide standard but must be created on a company by company basis.

Any travel that is vital for business growth or to keep your organization moving forward, should be considered an investment and not a fixed cost. Contact your FCM Travel Solutions expert to successfully develop and implement an effective travel programme in your organization.

 

This article first appeared on FCM Travel Solutions South Africa.