2. Coming To Terms Over
Travel Management
Savings As business travel management programs within companies
mature, it becomes increasingly incumbent on business travel buyers
to accurately define savings to more clearly communicate to senior
management the value of such efforts.
Corporate Travel This is hardly a challenge for new travel management programs,
which quickly can yield 10 percent to 25 percent savings simply by
consolidating and leveraging spending volume. Once the easily
100 Companies reached, ripened fruit has been picked, however, what is the person
who is responsible for the function of travel management to do for an
Pursue Consensus encore? At most companies, the answer is to continue to glean addi-
tional savings on an annual basis. The challenge in many organiza-
tions is that senior management is not always receptive to the ways
travel buyers define savings.
This white paper and the research efforts from which these findings
A BTN white paper were drawn are the results of the need expressed by several of the
100 largest buyers of business travel services in the United States to
sponsored by BCD attempt to determine a standard definition or definitions for travel
management savings.
Travel, Delta Air In fact, the impetus for this effort came directly from a question
raised by Philips International vice president of global commodity
management John Guarneri during BTN’s Corporate Travel 100
Lines, TPG Benchmarking Summit in May during the Association of Corporate
Travel Executives/Corporate Travel World conference in Washington,
Hospitality and D.C. While many in attendance that day were quick to respond to
Guarneri’s call to seek a common definition, it was Philips controller
Manhattan’s Tudor Hubert Cui who fully articulated the concepts that the Corporate
Travel 100 buyers and Business Travel News, with the support of BCD
Travel, Delta Air Lines, TPG Hospitality and Manhattan’s Tudor Hotel,
Hotel attempted to define.
Cui spelled out questions in four basic areas: How does your organ-
ization define travel-related savings, audit such savings, differentiate
savings efforts from changes in external conditions and determine the
level of detail that it requires?
Travel buyers from about two dozen companies that spent the most
on travel from U.S. points of sale in 2007 responded to a survey that
Business Travel News hosted online and/or attended a special day-
long benchmarking summit at Manhattan’s Tudor Hotel in September.
The organizations that were represented in this benchmarking
effort included Bank of America, BearingPoint, Bristol-Myers Squibb,
ConocoPhillips, Credit Suisse, Deutsche Bank, Ernst & Young,
Honeywell, Johnson & Johnson, Marsh & McLennan, Merck, Merrill
Lynch, News Corp., Oracle, Pfizer, Philips, PricewaterhouseCoopers,
Reed Elsevier, Siemens, Thomson Reuters, the United Nations, Verizon
and Wal-Mart.
What follows are their efforts to reach some kind of consensus in
defining these terms.
2
3. Savings: A Defining Moment
Recent efforts by some of America’s largest corporate travel buyers to
develop a standard definition of travel cost savings have proven elusive.
While some commonality exists, it appears that different types of organiza-
tions have very different views when it comes to defining these terms.
Clearly, no single theorem exists, and what emerged from the benchmark-
ing efforts of more than two dozen Corporate Travel 100 buyers, generally
speaking, were two different approaches: a more multifaceted and granular
one taken by those who report into purchasing or shared services organiza-
I EP
WBHNTHMARAIPER tions and the approach followed by those who report into other areas within
companies.
E C K NG The group of Corporate Travel 100 buyers who report to purchasing or
SAVINGS shared-service organizations, but hailed from myriad industry sectors, recog-
nized at least four potential factors in their cost savings measurements: incre-
mental or year-over-year savings, cost avoidance—which factors in cost ver-
sus market prices—soft savings or value-added services and potential future
savings opportunities.
While corporations apply different weights and measures to these factors,
some are more straightforward in their calculations by applying an orthodox
year-over-year expenditure reduction as their savings evaluation within each
supplier category.
The blurring of the lines One corporate travel buyer responding to the survey defined cost savings
as “straight reductions from previously sourced or new sourcing areas based
between sourcing and on relation to market,” cost avoidance as “avoidance of previously or tradi-
tionally based costs either through negotiation or process/implementation
travel management improvement,” and one-time savings as “savings that may be given as an
incentive or is based on a one-time need or limited supply, not realized on an
approaches, dire eco- annual basis.”
Another buyer said all savings methodology is defined as an “action taken
nomic conditions, rising by global procurement that results in a reduction against” one of three base-
lines: “previous price paid, internal proxy or relevant external pricing for
prices and decreased goods or services not currently purchased, or—for service-based contracts
where no previous unit price exists—lowest competitive legitimate bid or
best legitimate proposal as the relevant comparable pricing baseline.”
transaction volumes For another company, the savings equation includes hard savings or those
that have a direct impact on the bottom line, contract-based savings derived
have complicated the from negotiated prices, project-based savings from supply-based and produc-
tivity improvements and “one-off improvements” or soft-dollar savings, such
cost-savings equation. as value-added services.
Meanwhile, some of these long-held internal standards are in need of
• • • • • • • • refining as measuring cost savings in today’s economic environment has
become an increasingly cumbersome and troubling task for corporate travel
buyers.
The combination of several factors, including the blurring of the lines
between sourcing and travel management approaches, dire economic market
conditions, rising prices and, for many, decreased transaction volumes have
complicated the cost savings equation.
Even within companies, supplier category cost savings measurements vary.
For U.S.-based companies, air programs not only represent the biggest por-
tion of the T&E bill, they also can be the most complex area of savings eval-
3
4. Savings: A Defining Moment
uation. At the heart of the evaluation are conventional year-over-year reduc-
tions in spending. One buyer in response to the benchmarking survey charac-
terized air savings measurement as the “gross cost of the fare subtracting
actual cost after contract is applied.”
Meanwhile, some companies build on top of that baseline by measuring
savings associated with online versus offline average ticket prices, class of
service, domestic average ticket prices, international average ticket prices
and limiting analysis to top citypairs. Further obfuscating the issue is the pro-
liferation of such ancillary charges as baggage fees, inflight purchases and
seat upgrades. Travel buyers largely have yet to successfully net such fees out
of the base volumes.
In a time of rising airfares, during which many companies are scaling down
their transaction volumes, new decision-making processes around savings
definition and generation are emerging.
One Corporate Travel 100 buyer provided the example of volume fluctua-
I EP
WBHNTHMARAIPER tions on a domestic citypair. “I bought 1,000 units last year at $100 a unit. This
year, through negotiations, I am able to bring it down to $95 a unit, but I did
E C K NG 1,200 units,” the buyer said. “Are my savings on the $5 difference on the
SAVINGS 1,000 from last year or the 1,200 this year? By the most orthodox definition,
we are not supposed to factor in the volume effect, so it would be the 1,000.
On the other hand, they said to us that you could do the 1,200, but next year,
if your volume drops to 800, you have to take it the other way and decrement
your savings.”
While this buyer’s company is using a conventional methodology, other
companies choose the option of throwing the additional segments into a
At one company, “cost-avoidance bucket,” breaking out the overall price differential.
Others apply their own internally developed equations. One survey respon-
dent said that for airline savings measurements, the sum is derived from the
pooled volume is a gross cost of the fare subtracted from the actual cost after the contractually
determined discount is applied.
“religion” in order to While hotel and car rental savings performance metrics employ at least
some level of commonality, such as average cost per rental day, companies
account for unmanaged differ in these categories in the ways that they measure them when they
break them down more granularly.
spending and to deter- One axiomatic measurement of hotel savings is the year-over-year cost per
night differential, but buyers are struggling with applying specific market con-
mine the spending over ditions into the equation, including market demand, seasonal rate fluctuation
and currency exchange rates. One Corporate Travel 100 buyer said he isn’t
which they have influ- permitted to claim exchange rate differentials when presenting the savings
performance, but providing this analysis gives senior management the view
into “what is impacting the cost savings or increases.”
ence, but the “level of Some companies drill down by zip code or region in order to get more spe-
cific comparisons of year-over-year hotel savings, but others use a more
religion changes with straightforward approach of applying the pooled volume, including preferred
hotel bookings and bookings that go outside of preferred channels. At one
the economy.” company, pooled volume is a “religion” in order to account for unmanaged
spending and to determine the portion of the spending over which they have
• • • • • • • • influence, but the “level of religion changes with the economy.”
As travel buyers broaden their management roles by adding such cate-
gories as meetings and events and remote conferencing management, the
need to display savings for these categories also has wrought different sav-
ings interpretations.
One Corporate Travel 100 company travel buyer uses the first room rate
received during the meetings request-for-proposals process as the savings
benchmark. Another buyer takes a more liberal approach to meetings savings
measurements by using the negotiated rate versus the “standard corporate”
4
5. Savings: A Defining Moment
rate, which shows an inflated savings number because daily room rates in a
group block often are lower than transient rates, and in some cases meeting
packages that include food and beverage charges are negotiated to be includ-
ed as part of the room fee.
Others measure savings based on changes in the the cost per attendee for
annual meetings, leaving out destination-specific price impacts as well as the
impact of one-off and ad hoc meetings. Then, there is the question of when
to measure meetings savings: during sourcing or after the meeting occurs.
One buyer does so after the fact because of the potential for cancellations.
According to one survey respondent, meetings cost savings is calculated on a
budget versus actual comparison, “so if a meeting budget was $1 million and
the meeting was negotiated at $500,000, then they would take the $500,000
in savings.”
Just as volume reductions and rising costs affect travel supplier savings,
they also affect corporate card program savings calculations. As volumes
decline, so will rebates and/or incentives—considerable bonus revenue
streams for many companies.
I EP
WBHNTHMARAIPER Yet, this is an area where buyers consider themselves able to exert some
influence by pushing further compliance to the card. However, in this area
E C K NG there also are myriad ways to measure the savings from the program, includ-
SAVINGS ing breaking out the volume effects and taking out central management fees
from the rebates. Savings can be measured year over year or over the life of
the card program, which typically is a multiyear deal. In addition, rebates
often are not received until more than a year after the calendar year in which
the rebate is attached.
Meanwhile, such nascent managed categories as remote conferencing are
providing further headaches. With remote conferencing facilities costing hun-
dreds of thousands or even millions of dollars, travel buyers are finding them-
One buyer calculates selves attempting to measure the return on investment and the savings asso-
ciated with the reduction of travel costs as well as to manage the cost avoid-
savings on a budget ance factors when applicable.
Using technological alternatives isn’t the only form of demand manage-
versus actual compari- ment that can affect savings negatively by reducing volumes, undermining
negotiated discount deals with suppliers. As buyers are pushing various
son, “so if a meeting levers, such as sliding advance-purchase thresholds, altering business class
threshold allowances and moving more reservations online, total program
value measurement is paramount in the benefit equation of the managed cor-
budget was $1 million porate travel program.
As demand management rises in importance for many corporations in this
and the meeting was economy, it also muddies the savings waters as companies focus on reducing
trips to cut costs and battle rising prices. Thus, some Corporate Travel 100
negotiated at buyers are applying a new measurement: cost savings plus avoidance equals
total benefit. This underscores the fact that straight cost savings or reduction
$500,000, then they is not the only measure of travel program performance. Instead, an amalga-
mation of all the benefits travel managers bring to the table is the truest form
would take the of measurement.
While there is no universal method or gold standard in applying any of these
$500,000 in savings.” measurements, travel buyers are wrestling with similar issues in cost savings.
Despite corporations’ disparate stances and varied methodologies and an
increased focus on straightforward cost reductions—at least for some compa-
• • • • • • • •
nies—some common characteristics have surfaced. Travel buyers can wield
these principal components to tailor a cost-savings equation that makes it eas-
ier for senior management, suppliers and their travel-buying peers to under-
stand the benefits of the managed travel program and the value the travel
buyer brings to the table.
5
6. Auditing Travel Savings
Once companies define savings, they employ a variety of methods to audit
the savings that travel departments generate. Despite different methodolo-
gies in the frequency of the audits, the type of data used, the metrics used
and the authoritative level that is required to sign off on the audits, buyers
agree that some sort of oversight on savings is necessary. Some buyers even
said that their savings did not count until they were audited. “Our entire being
is measuring what we save,” one buyer said.
Part of the challenge in auditing travel savings is the transcendence of the
I EP
WBHNTHMARAIPER program’s effect in a given company. Its effects are seen across all sectors,
divisions or units of a company, and each of those parts of an organization can
E C K NG have varying percentages of employees who travel. What follows includes
SAVINGS some of the best practices in handling audits, as employed by buyers manag-
ing travel at Corporate Travel 100 companies.
With all the data sources that are available, the two that travel buyers most
often turn to in auditing their savings performance are corporate card data
and booking/agency data. Many buyers use a combination of those two
sources for auditing purposes when available.
Both data streams have their strengths and weaknesses. Corporate card
data gives a clear picture of actual expenses incurred but misses out-of-pock-
et expenses—a particular problem if companies do not have strong compli-
ance with their corporate card—and also can lack enriched data from certain
supplier sources. Booked data, meanwhile, is immediately available but often
According to some can differ from what is actually paid by the traveler.
One buyer reported using an agency consulting group to measure air, car
buyers, savings do not and hotel expenses, consolidating data feeds from four separate travel agen-
cies. The company in turn takes that data and translates it to a procurement
count until they are dashboard tool.
The buyer uses agency data over card data because of the detail available
audited. “Our entire compared with corporate card data. As a result, the buyer said air data is very
good, car data is adequate but hotel data is understated because hotels often
being is measuring are not booked through the agency. For now, the buyer is comfortable with the
margin of error, but there are plans for an enterprise system to help get
expense reporting data that can assist in filling in the blanks.
what we save,” Another buyer said the company receives savings reports directly from the
agency, supplemented by a third-party consulting company to support the
one said. company’s global airline requests for proposals and quarterly audits.
Corporate card suppliers, meanwhile, are working on enhancements to the
• • • • • • • • data they can provide travel buyers. Detailed electronic hotel folio data, for
example, now is available at many properties across most major hotel brands.
One buyer said the current policy is to use corporate card data for airlines
online, with agency data used for hotel and car rental costs. However, the
buyer said that the company this year is switching to card data for hotel and
car rental as well.
Another buyer said that their company uses both agency data and bottom-
line general ledger data to determine total T&E spending levels for savings
audits. The general ledger data is the best indicator of savings, the buyer said.
Once the data source or sources are determined, buyers have to determine
how best to use them to audit savings. Raw data alone usually is not suffi-
cient to show savings performance, particularly with global contracts.
6
7. Auditing Travel Savings
“Unless we can trace it back to a cost center, we can’t count it as savings,”
according to one buyer. “Now we have to trace it down to the penny at the
cost center.”
Buyers must determine a point of comparison to use in audits. One buyer
reported using scripted input at the point of sale, for bookings through either
the agency or the online booking tool, which compares the negotiated fare to
what the cost would have been without the contractual discounts. Airfare
savings are not inflated by using unrestricted airfares as a point of compari-
son, the buyer said. When bookings are out of policy, travelers’ managers are
alerted to the lost savings opportunities via e-mail.
Another buyer reported using direct matching when possible to show sav-
ings. For example, airfares are matched citypair to citypair.
A third buyer reported using a scorecard to measure performance against
the forecast for savings throughout the year. The information is reported
monthly to management and subsequently is reported up the chain.
I EP
WBHNTHMARAIPER In terms of frequency, quarterly reviews of data for savings were popular
for travel buyers. Some do so more often, however, particularly when moni-
E C K NG toring the progress of new or high-savings-yield projects. One buyer, in lieu of
SAVINGS external savings audits, said the policy was to review raw data weekly for a
self-audit.
The scope and frequency of audits can change within the lifespan of major
projects. One buyer said their company’s policy, in the case of three- or five-
year contracts, was to audit the savings for the first year and then to true up
quarterly in subsequent years to ensure the savings were still on track.
Internal happenings within a company also can change the frequency of
audits. One buyer said her general policy was to audit savings annually.
However, her company recently had completed a merger, and travel was part
Buyers agreed that it is of the synergy savings that had to be reported to Wall Street quarterly.
Therefore, for the three years following the merger, she also has to audit
a best practice to have those quarterly synergy savings.
Buyers agreed that it is a best practice to have an independent internal
an independent internal team dedicated to project savings validation and approval. Various people or
departments may bear the ultimate responsibility for signing off on travel sav-
team dedicated to proj- ings audits. That responsible party will depend on to whom the buyer must
report. While more buyers are reporting into procurement, the ultimate
ect savings validation authority often is someone within the finance division.
One buyer said she must take every new project before the finance group
and approval. The ulti- prior to the onset to get approval of the savings methodology. “We have basic
rules, but anything that is gray, we take it to them, especially if the savings
are over $1 million,” she said. “They must sign off on it.”
mate authority often is That approval can come from different levels in the finance organization.
Some buyers have to report to financial controllers, chief financial officers or
someone within the chief procurement officers. Others simply have a designated group within the
department to whom they report.
finance division. Some buyers have more intricate layers to sign off on auditing. One buyer
reported multiple layers of required audits and review, going through demand-
• • • • • • • • side business handshakes, the travel controller and an internal control officer
for key projects. In many cases, these authorities do not micromanage every
level of the audits. Rather, they sign off on the key metrics of the audits and
only need to approve first-time methodology.
Travel departments can be even more autonomous. A few buyers reported
no direct audit process for savings outside of their own department. Still,
managers will review reports for accuracy, even if not dictating each metric
of the audit. “More often than not,” one buyer said, “our auditing department
is concentrating on actual operation rather than worrying about whether I’ve
done my calculation correctly.”
7
8. Factoring In Influences
Because corporate travel buyers do not operate within a vacuum, a high
portion of an organization’s travel spending is determined by factors outside
of the travel department’s control, be those internal demand trends or exter-
nal market forces.
On the airline side, general industry fluctuations, capacity cuts, the
entrance of low-cost carriers into a local market, newly introduced fees and
other external forces can have a large impact on a company’s travel costs.
Likewise, the hotel market can fluctuate against the buyers’ interest with high
I EP
WBHNTHMARAIPER occupancy or in their favor with sluggish market demand or new supply inject-
ed into a city.
E C K NG There is no consensus on methods a company should use to differentiate
SAVINGS savings achieved through their own efforts against favorable or unfavorable
external and travel industry events that drive or hamper savings.
It’s a mixed bag for buyers: Some said they look at overall spending as one
lump sum—regardless of whether cost fluctuations come from within or were
manipulated by a market larger than them—while others attempt to examine
only what they can achieve through contract negotiations and policy enforce-
ment. “It’s anecdotal and finance people want hard numbers,” one buyer said.
The rise of demand While some companies neglect to differentiate savings or losses derived
from factors outside of the travel department’s control, others said the bean
management principles counters upstairs put full responsibility for travel spending on the shoulders
of the travel department.
has empowered buyers One buyer said, “We are expected to mitigate changes in the industry with
either additional discounts or reductions in travel. Cost avoidance is tracked
with ways to alter inter- but is not truly considered savings.”
Furthermore, some companies prefer to set comparable year-over-year
nal consumption pat- baselines, attempting to construct apples-to-apples comparisons that strip
out savings or losses not generated from within the travel department.
Others, meanwhile, don’t care where cost increases or decreases originate,
terns or steer travelers just that they are recorded and accounted.
Though buyers are resigned to the fact that they manage travel—not con-
toward cost-averse trol it—the rise of demand management principles has empowered them
with ways to alter internal consumption patterns or steer travelers toward
behavior. “We can’t cost-averse behavior. “We can’t control demand, but we can offer up cost-
savings opportunities,” said one buyer. Though such practices offer further
control demand, but we control, they come at the expense of elusive measurement opportunities.
Meanwhile, buyers also diverge as to how they differentiate hard-dollar
can offer up cost-sav- savings with a measurable impact on the balance sheet and soft-dollar sav-
ings that drive cost avoidance or bestow difficult-to-monetize benefits upon
ings opportunities,” travelers.
As airlines continually add fees for previously inclusive services as checked
baggage or seat assignments—benefits once characterized as soft-dollar—
said one. now can have some measurable hard-dollar figures attached. For example, as
elite holders of airline loyalty programs are shielded from some ancillary
• • • • • • • • charges, the savings generated from such programs can be determined with
a bit more ease.
For others, it depends on the soft-dollar benefit in question and if there is
a demonstrated cost associated with value-add items—for example, a con-
tract with a hotel that waives parking fees or includes free Internet or break-
8
9. Factoring In Influences
fast in the rate could count as negotiated savings.
“If value-adds can be quantified and validated, the value can be counted as
cost avoidance,” said one buyer. “If high-speed Internet access is a cost ordi-
narily passed to the traveler but our negotiations include this access in the
rate, applicable cost avoidance can be claimed.”
While some have determined ways to record such soft dollars on balance
sheets, many buyers—at the behest of the finance department—only report
to the profit and loss statement what the CFO would consider validated sav-
ings. This camp says soft-dollar savings fall into the cost-avoidance category,
not true cost-savings. As such, many buyers measure soft-dollar savings sep-
arately and treat their impact as an anecdotal footnote to the hard savings
number on the balance sheet.
As one buyer said, “Hard savings are reported as negotiated savings and
soft savings are reported under categories known as cost avoidance, such as
nonrefundable exchanges and waivers and favors.”
I EP
WBHNTHMARAIPER Regardless of how they are reported, many buyers do attempt to track soft-
dollar savings, even if hard-line financial departments are inclined to disre-
E C K NG gard or minimize those efforts in favor of what they would consider true cost
SAVINGS savings. “Even though there are clear values added to the businesses if our
rates are better than market rates,” one buyer said, “it remains a challenging
task to get the savings recognized within the company.”
“If high-speed Internet
access is a cost ordi-
narily passed to the
traveler but our negotia-
tions include this access
in the rate, applicable
cost avoidance can be
claimed.”
• • • • • • • •
9
10. Defining The Details
While the level of detail required for reporting savings varies by company,
Corporate Travel 100 participants in this benchmarking initiative generally
were divided between those who break down reporting by region or business
units and those who calculate savings based on citypairs.
One participant’s company, which uses both measures, “requires projects
to be reported by business sector, by region. When calculating savings based
on citypair, we generally apply the 80/20 rule, where only the top 80 percent
volume pairs will be analyzed.”
I EP
WBHNTHMARAIPER Another respondent said, “We do it by business unit, by country, by region
and globally.”
E C K NG However, for some, like pharmaceutical companies, reporting needs to be
SAVINGS even more detailed. One such Corporate Travel 100 manager said, “Because
we make pharmaceuticals, we have to have so much documentation about
every single thing we do. We have an actual savings handbook of what we
can do, what we can’t do, how to measure things and how not to measure
things. It’s not perfect, but it does hit 90 percent of what we actually do. The
savings handbook was probably written a lot more for direct materials than it
was for indirect, which travel falls under, but we still have to adhere to those
same rules.”
That travel manager added, “Everything has to be documented. We have a
“Everything has to be global procurement desktop and we actually record everything into this desk-
top. Our management religiously looks at this, as do our stakeholders.”
documented. We have Other companies use the concept of pipelines to break savings initiatives
down step by step. One Corporate Travel 100 buyer’s company has four
a global procurement pipelines to follow the savings initiative through its lifecycle. When someone
gets an idea that could lead to savings, it is put into the “discovery” catego-
desktop and we actually ry. The “identify” category is used to identify the necessary actions needed in
order to realize the savings. An initiative is classified as “under development”
record everything into when the company is on the way to realizing savings. The final pipeline cate-
gory is “achieve.”
this desktop. Our man- Another buyer said their company has five stages, and within each stage
“you can be red, yellow or green.”
One buyer uses a specific plan for any project, which they present along
agement religiously with different stage reviews to management. “It chronicles exactly what
we’ve done for this particular event so that when we move on to source some
looks at this, as do our other commodity, somebody else can come along and actually know what was
done the very last time,” the buyer said.
stakeholders.” Some buyers said that a major focus in their company was to work with
suppliers for the long term.
• • • • • • • • “When we do get audited, that’s the first, middle and last thing they audit:
how we are managing our vendors,” one buyer said.
Another buyer added, “A lot of the time, we either have really long relation-
ships with someone or very short ones. Instead of going out to bid all the time,
the company is trying to focus on supplier value management and working
with the supplier and really honing down the process. We’ve spent a lot of
time looking at that.”
Many Corporate Travel 100 buyers said the biggest opportunity for cost sav-
ings lies in changing traveler behavior.
“A lot of it is around how we get travelers to change their behavior and
10
11. Defining The Details
what that can deliver. I think that’s our biggest cost-saving opportunity or not,
depending on whether they take it or not. Ultimately, we can’t say what
they’re going to do,” one buyer said.
Some buyers said that they provide reporting tools and metrics to travelers
and management, or that they have travel agents call travelers to show them
the savings opportunities that are available when they use in-policy travel
options.
“We issue a report every month that is a scorecard that has six levels—for
the CEO down five levels,” said one buyer. “For example, if one of my employ-
ees didn’t follow policy, I’ll see it, my boss will see it and his boss will see it.
We’re actually naming names and we’re actually showing in this report what
they bought and what they could have bought. And even though we are giv-
ing up lost savings opportunities for those particular trips, we’ve found this a
lot more valuable by the way we’re able to document everything. People don’t
like their names on lists.”
I EP
WBHNTHMARAIPER
E C K NG
SAVINGS
“For example, if one of
my employees didn’t
follow policy, I’ll see it,
my boss will see it and
his boss will see it.
We’re actually naming
names and we’re actu-
ally showing in this
report what they bought
and what they could
have bought.”
• • • • • • • •
11
13. Corporate Travel 100 Benchmarking Summit
Defining travel management savings and value
September 16, 2008
Attendee questionnaire responses
Ia. How does your organization define travel related One-Time Saving: Savings that may be given as an
savings for airline, car rental, hotel, meetings, other? incentive or is based on a one-time need or limited
supply, cost savings not realized on an annual basis
1. Cost avoidance, incremental savings, contractual
savings, etc. 5. Savings include both hard-savings (direct impact
2. Savings are based on year-over-year reduction in to P&L) and value-added savings (indirect impact to
total spend. That could come from reduction in the P&L, cost avoidance, savings on capex / cashflow)
cost per transaction (e.g. increased discounts on air- Three major categories are used:
fares or reduced hotel rates) and/or reduced demand Contract Based savings – hard-savings (EBIT 1 –
(e.g. reduction in the number of tickets purchased or supply based price negotiation)
room nights purchased). Project Based savings – hard-savings (EBIT 2 –
3. We base all methodology on our Procurement Supply based and productivity improvements; EBIT
Savings Handbook and the “Gold Standard:” Global One Off improvements) 3. Project Based savings –
Procurement savings are measured and defined as an indirect/soft savings (value-added / cash-flow
action taken by Global Procurement that results in a improvement)
reduction against one of the following baselines: 1.
Previous price paid 2. Internal proxy or relevant exter- 6. Incremental - year over year.
nal pricing* (for goods or services not currently pur-
chased) 3. Budget Note: If #1 above does not exist, 7. Savings that are attributed to the efforts of our
go to #2, then #3 * For service based contracts, dedicated team and result in lowering the net costs of
where no previous unit price exists, use lowest com- travel when compared to having no program or efforts
petitive legitimate bid or best legitimate proposal as in place. Our costs vs the walk-up costs
the relevant comparable pricing baseline.
However, Finance made some allowance with 8. Year-over-year cost comparison - from the unit
regard to airline, card and meetings: level rolled up to total spend per segment; all absent
Airline: Incremental Discount (as we cannot get to a of market conditions
past price paid without blending averages)
Hotel: Past Price Paid (Rate this Year vs. Last Year) 9. We calculate savings between preferred airlines,
– we have one guarantee contract and if we manage and hotels on the same route/destination. Also non-
to negotiate away the increase we can take the value preferred to preferred rates. Use of nonrefundable
of what we negotiated away against what we would tickets that were cancelled. Value adds included with
have paid. rates e.g. breakfast and or internet access. We work
Car Rental: Past Price Paid (Rate this Year vs. Last with hotels when rates are booked over our negotiat-
Year or term, we would also measure mitigated sur- ed rate and measure how often the rate is reduced.
charges, fees or extras as savings) We also look at total trip cost savings when compar-
Meetings: Budget vs. Actual Card: Hard Dollar ing flying vs. taking the train and finally with meetings
Savings in Sign-on and Rebate when received (so and events we measure what the global relationship
every year recognized) delivers to our event planners vs. the first quote
4. Cost Saving: Straight reduction from previously 10. We define them as incremental contracted sav-
sourced or new sourcing area based on relation to ings. Savings are defined as being able to lower our
market costs year over year. We define contracted savings as
Cost Avoidance: Avoidance of previously or tradi- improvement over current agreements. Actual savings
tionally based costs either through negotiation or are only reported when incremental spend is truly low-
process/implementation improvement ered (i.e.: true savings)
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14. 11. Airline: negotiated savings only: comparing fare lection from audits, settlement of contract breach,
before the discount against fare paid. etc.)
Meetings: benchmark corporate hotel rate against Project Based savings – value-added / capex sav-
negotiated rate paid ings • Value-added: generally, the same calculation
Hotels: contracted rate against first rate offered; methodology (old cost – new cost) apply. E.g., Travel
negotiated amenities (ie, free breakfast, internet) ban for a certain period = average price per city pair *
volume reduced for a certain period. • This category
Ib. How does your organization recognize travel relat- may require pre-approval from the management
ed savings for each of the abovementioned areas? before reporting. • Since there is not a 100% correla-
(methodology /formulas) tion between the savings and Travel’s contribution,
savings in this category may not be treated at “hard-
1. identification of a spend baseline -> sourcable savings”.
spend baseline -> target sourcable baseline/cost
avoidance, incremental savings, increased discount 6. Airline discount is 20% and is reduced to 15% -
levels savings is 5% X est. annual volume. Car rental avg
total rate paid is $50 reduced to $40 savings is $10 X
2. See above. est. annual volume Hotel avg room rate $120 reduced
to $110 savings is $10 X est. annual volume
3. Air: Incremental discount = (old discount vs. new Meetings – very difficult to determine –if however there
discount) * actual flight segment flown are like meeting any reduction would be.
Hotel: Past price paid (rate this year vs. last year)
Car Rental: Past price paid (rate this year vs. last 7. Airline - Savings % is gross cost of fare subtract-
year or term, we would also measure mitigated sur- ing actual cost after contract applied. Divide diff by
charges, fees or extras as savings) gross cost and % result is overall % of savings. Car
Meetings: Budget vs. actual – so if meeting budget Rental not measured. Hotel is RAC rate less our rate -
was 1 million and the meeting was negotiated at and difference is divided by RAC to result in % sav-
$500k, then they would take the $500k in savings ings.
Card: Hard dollar savings in sign-on and rebate
when received (so every year recognized 8. In addition to the answer in question 1, we calcu-
late savings as described above, notate ‘cost avoid-
4. “Go to Market” event, and subsequent negotia- ance’ based on market conditions, and add the two
tion. Expansion of current or existing scope and rene- together to identify ‘total benefit’.
gotiation. Reduction of cost for non-related but similar
scope of business. Supplier “give back” or incentive. 9. It is a fairly manual process as we want the data
Negotiation with existing supplier. Contract commit- to be as accurate as possible as well as the fact that
ment with un-contracted supplier. Detailed documen- we are measuring multiple areas, e.g. the value of
tation required of current costs vs. new costs required Internet access negotiated in the room rate or break-
for validation of savings. fast. We do use the reason code reports from the
5. In general: agency to assist specifically with air and also manually
Contract Based savings = (old price – new price)* calculate savings between carriers and usage. we
new volume, with rebates/commissions incorporate also look at the impact of behaviour changes and for
into the prices We also tried to calculate savings example staying in the lowest priced preferred hotel in
based on comparison of new market price vs. new a city and what that would deliver
company price. However, such market benchmark
efforts are not recognized by the company in 2008 or
2009.
Project Based savings – hard-savings = (old price –
new price)* new volume • For brand new price/bid-
ding, if historical average price is not available, savings
= (lowest first quote of all vendors -/- final price) x
actual year-to-date volume • It may also require man-
agement’s approvals for special cases (e.g. fee col-
BTN’s Corporate Travel 100 3 Benchmarking Summit
15. IIa. How does your organization audit such savings? 8. Quarterly reports that roll up for the fiscal year.
(frequency of reporting / data of substantiation)
1. Monthly/quarterly project upload and review by a 9. We do monthly reporting to the business and
dedicated global team; savings scope and potential have our own internal analyst who verifies the figures
independently evaluated according to established pro- together with the analysts at the agency
cedure and benchmark
10. We engage our agency to provide our savings
2. We have regular meetings with the finance group, reports and a third-party consulting company to sup-
which validates the savings methodologies. port our global airline RFP and quarterly audits. We
report on cost avoidance on how we manage to the
3. Agency consulting group measures air, car and program. On a quarterly basis for hotel and air we look
hotel and reports it to us. We have four travel agen- at our purchased price paid as compared to contract
cies feeding data to one agency for data consolida- rates
tion. We take that data and translate it to a procure-
ment dashboard tool. We estimate savings for the 11. No audit performed
month, quarter and year and true up as we go.
Air is very good – car is not bad but hotel is under- IIb. What are the key controls in your saving report-
stated because hotels are not often booked through ing process, to ensure savings are accurate?
the agency. We use booked as opposed to card data
as we need detail. We are ok with the margin of error. 1. Independent/internal dedicated team responsible
We have no way to get expense reporting data at the for project savings validation and approval, not sourcing
moment – plans for an enterprise system are under-
way. Air, card and agency fees are auditable. Online 2. We received agency data to determine the trans-
booking segments are auditable. Most other things actions, average ticket price and hotel rate (among
are not. Our meeting agencies report savings to us. other things) and also get the bottom line GL data to
determine total T&E spend. The latter is the best indi-
4. Frequency – quarterly. Reporting from company cator of savings.
records and/or supplier using approved methodology
(see 1b. above) 3. Finance does spot audits of our initiatives.
Procurement has fairly high standards. We are
5. Multiple layers of reviews/audits exist. All projects required to report this information monthly to our man-
are reviewed /approved by: agement, who reports it up the chain. We are meas-
Demand side business handshakes (business own- ured in our scorecard by how well we forecast our
ers who benefits from the travel projects), and savings for the year. Coming in over forecast is not
Travel controller Savings must be in compliance with valued. For the first time we are beginning to report
pre-defined definitions. Data substantiation (invoices / out a variety of metrics with standards we have set in
source of information) have to be attached/specified in place globally. We are not near where we need to be
the project tracking tool. yet but it is a start.
Key projects (top 80% in amount) also have to be
reviewed / approved by: 4. See 2a above. Validate calculations and examine
Demand side financial handshakes (finance person supporting documentation.
from businesses which benefit from the travel proj-
ects), and 5. See answers in 2a for the layers of controls in
Internal Control Officer (compliance officer on behalf place. Three critical points of controls are:
of management team) Travel controllers – as gatekeeper for all travel saving
projects
6. Each buyer is responsible to ensure that savings Demand Side / business handshake – as approver
are being realized. Spot audits are performed through- for project / calculation approach / forecasted savings
out the year. Internal Control Officer – as ultimate gatekeeper for
key projects.
7. Self-audits are done weekly by review of raw
data. No external savings audits are performed. 6. They are linked, in our on line contract manage-
BTN’s Corporate Travel 100 4 Benchmarking Summit
16. ment system, to the agreement 7. No one as savings are not ‘accountable’ to the
corporation, however managers review reports for
7. Scripting, and report review same week to correct accuracy before internal savings are reported up.
typos for any manually entered items. Working toward
robotics to gather and document information without 8. The head of purchasing
manual additions
9. Travel Services
8. Direct matching (i.e. city pair to city pair for air)
where possible; minimize extrapolation 10. n/a
9. It is based on booked data and comparisons are 11. Worldwide Procurement. They have responsibili-
conducted against the corporate card data, compar- ty for reporting savings up through the organization
ing what was booked to what was actually paid for.
10. n/a
11. Agent and user scripted input at initial point of
sale whether reservation is made direct with the
agency or through our online booking tool, reported
through the agency back office. Comparison is
made between what travel would have paid without
contractual discounts to the negotiated fare paid to
report true savings – not inflated by comparing to
unrestricted airfare.
We send pre-trip out of policy emails to travelers’
managers to alert them of lost savings opportunities.
IIc. Who needs to sign-off on the saving numbers in
your organization before it becomes official?
1. Varies on level and scope; includes: category
mgr, category director; category mgmt, benefit track-
ing (independent/dedicated team), etc.
2. Finance.
3. Financial Controller for the Division we report to.
Not all things need be signed off – if it is a first time
methodology we get the approval.
4. Designated financial officer. Chief Procurement
Officer presents the savings in summary form to oper-
ating companies.
5. All projects are required to be approved by: •
Project owner • Supply Market Manager • Demand
Side: business handshake • Travel Controller Key
projects also require the approval from: • Demand
Side: financial handshake • Internal Controller Officer
6. Executive Director
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17. IIIa. How did you differentiate savings due to the 7. Every record has a UDID for whether a savings is
efforts by your organization, vs. favorable or unfavor- contracted or no savings exists. Savings due to con-
able external and travel industry factors that lead or tracts is measured against those eligible for savings.
hamper such savings? (e.g. how to differentiate reduc- Blended discount is all savings against all records,
tion of airfare due to negotiation efforts from the where ‘actual’ discount is exclusive to contracted sup-
Travel department, or due to a new LLC entering the pliers to show value of contracts.
market and driving down fares.)
8. No differentiation at this time
1. Set comparable (equalized) baselines for apples-
to-apples comparisons 9. We compare old airline/hotel rates to new rates
when RFPs have been conducted and based on pre-
2. We don’t. We are expected to mitigate changes vious year data will calculate the savings figure if travel
in the industry with either additional discounts or patterns remain the same and if we have been able to
reduction in travel. Cost avoidance is tracked but is negotiate better rates. We also speak with our internal
not truly considered a savings. analysts for air and hotel and get their sense on where
the industry is going by region and benchmark our
3. For air it is fairly simple – we use incremental dis- rates against their predictions.
counts YOY and not blended averages. So we can
tell right off what our contribution is. We track against 10. We don’t do this
forecasts but a good deal of what we log is cost
avoidance. 11. Our policy is lowest fare of the day within our
travel policy window. We validate our success
4. Currently no differentiation, and probably minimal through various sources (ie: agency reporting, third
exposure for our company since unit travel costs are party audits, industry experts/benchmarking). It’s
not going down and our key markets experience limit- incumbent upon the travel department to select the
ed impact from LCCs. However, if there is an agree- right negotiating environment to conduct RFPs or
ment negotiated with a previously non-preferred carri- revisit existing contractual terms.
er, for instance, the differential of new fare and previ-
ous fare would be captured as cost savings (see 1a IIIb. How do you differentiate projects with hard sav-
above). Same would apply to all travel categories. ings (savings that have direct impact to your P&L), vs.
Another area is demand management, which would soft savings (savings that may be cost avoidance, value-
include consumption (less or more travel) and change added, which do not bring direct P&L improvement),
of behavior (e.g., air class of service, advance pur- from scope and reporting perspective?
chase, changing from deluxe to moderate hotels).
Such calculations are on our company’s radar once a 1. All savings types (and potentials) are validated as
consistent and enforceable travel policy is in place part of financial validation process for all projects
and move to more to a consolidated TMC platform –
currently, our company does not have reliable data to 2. Hard savings is what is reported.
calculate these savings and/or cost avoidance oppor-
tunities. 3. The chart below shows how we define Savings
5. Our CTA (cContract based) savings are all inclu- and Benefit. We enter all things in our Procurement
sive. Therefore, external factors are lump-summed Desktop however only hard dollar savings are truly val-
with internal efforts for saving calculations. ued. We need to prove the benefit and when we do
For PTA (project based) savings, if there is no direct our businesses buy into our savings (and remove from
/ 100% correlation between Travel’s effort and ultimate their budget). The traditional savings measure that per-
savings (i.e. other external factors may also con- mits these exclusions will be referred to as
tributed to the savings), we may be required by the “Procurement Benefit”. The table below illustrates what
management to report under “value-added” section is included in Procurement Savings vs. Procurement
Benefit.
6. They are not differentiated any reduction is
savings
BTN’s Corporate Travel 100 6 Benchmarking Summit
18. 3. If value-adds can be quantified and validated, the
Capital Capital Expense Expense
Reduction Avoidance Reduction Avoidance value can be counted as cost avoidance. For exam-
ple, for hotels, if high-speed Internet access is a cost
Procurement Savings
ordinarily passed to the traveler but our negotiations
Procurement Benefit include this access in the rate, applicable cost avoid-
ance can be claimed.
4. Labeled and validated in accordance with defini- 4. Value-added projects may or may not count
tions in 1a above. towards savings. Pre-approvals are needed for the
savings to be recognized. E.g., benchmark results
5. See answers for Question #1. We are reporting / (compare our contract rates with market rates) are not
tracking value-added projects in a separate saving recognized for 2008 and 2009.
category. Theoretically, separate saving targets should Travel is a matured business. Now that we are
be set for hard savings and soft savings, respectively. experiencing increasing prices year-over-year and
negative savings from contract negotiations (year 2
6. Soft dollar savings are documented but ARE NOT price year 1 price), value-added savings are the
considered real savings only area where large amount of potential savings
could be achieved. Even though there are clear values
7. Hard Savings are reported as ‘negotiated savings’ added to the businesses if our rates are better than
where soft savings are reported under categories market rates, it remains a challenging task to get the
known as ‘cost avoidance’ such as ‘nonrefundable savings recognized within the company.
exchanges’ and ‘waivers and favors’ 5. Travel is treated as any other commodity. Real
savings. Programs that make sense and meet the
8. Again, we look at actual year over year costs for needs of the travelers. i.e.: balancing new airline
hard savings, and notate cost avoidance to identify requirements – United’s “stay over” policy that was
total benefit of the travel management program later rescinded.
9. We separate out cost avoidance versus hard sav- 6. They count toward internal (travel
ings with year-over-year deal improvements department/team productivity metrics) which are
reported up.
10. We haven’t been able to systematically capture
and report on this 7. We don’t report on this at this time
11. We differentiate soft savings as cost avoidance
(defined as management of the program). 8. Where there is a demonstrated cost for value
added items (such as parking, internet, breakfast),
III c. Do value-added projects (soft savings) count when we negotiate that in we count it as negotiated
toward savings in your organization? If not, how does savings.
your travel department justify their value to your corpo-
ration?
Respondents: 60% yes, 40% no
1. Reported but not considered important.
2. We measure it and report it but quite frankly, it is
not valued. We argue that we bring value in cost
avoiding almost $20M a year but we cannot recognize
this as savings automatically. We are logging it in our
procurement desktop and trying to educate not only
our management but our stakeholders that this is the
true value we bring along with our market knowledge
but more work must be done.
BTN’s Corporate Travel 100 7 Benchmarking Summit
19. IV. What level of detail is required in your organiza- 4. While we make every effort to report savings,
tion (e.g regional/country/business unit) for saving where possible, by country and business unit, such
reporting purpose? (With hundreds of city or city pairs calculations are extremely limited and inefficient at this
that might be in scope, how did you efficiently calculate time due to the company’s multiple reporting systems,
travel related savings without missing or generalizing use of multiple agencies and booking tools. Such
the saving factors that might be regional/country-specif- reporting, where possible, is localized in nature.
ic/or business specific?)
5. We generalize at the highest levels for summary
1. All: Region/country/applicable BLs or BUs/etc. purposes. At the business unit level more detail is pro-
vided which brings into play the business units travel
2. Philips requires projects to be reported by busi- patterns including city pair shifts year to year as they
ness sector, by region. When calculating savings impact Average ticket prices, mileage flown and cost
based on city pair, we generally apply the “80-20 per mile.
rule”, where only top 80% volume city pairs will be
analyzed. In other cases (e.g. contract negation sav- 6. We match city pairs wherever possible, and
ings), we may also allocate saving numbers based on extrapolate the balance of what doesn’t match
historical spending allocations (by region, by sector, or
by country). 7. We looked at the top 100 city pair information by
country, which represented around 80 percent of total
3. We look at each individual city pair (to the point spend by country.
that it makes sense) – domestically the top 75 – inter-
nationally the top 25. Beyond that, savings are based 8. We report on high-level savings and not on detail
on weighted averages.
9. Regional, country and business unit level is
4. Summary level detail is reported. Additional is required on all transactions booked through our desig-
available upon request by the business unit. nated agency. We provide executive summary infor-
mation to the businesses on a quarterly basis relative
5. We start at the operating company level (for some to overall spend and savings, as well as lost savings
of our larger operating companies we go down to the opportunity. While we highlight spend in key markets
division level), and roll up to the enterprise level on key carriers and at key hotel chains, we can report
down to the individual traveler/transaction level when
6. We do by business unit, by country, by region required.
and global
V. With hundreds of city or city pairs that might be in
scope, how did you efficiently calculate travel related
savings without missing or generalizing the saving fac-
tors that might be regional/country-specific/or business
specific?
1. Identify region specific considerations and scope
for a fair apples-to-apples comparison
2. We report at the business and regional level.
3. While we make every effort to report savings,
where possible, by country and business unit, such
calculations are extremely limited and inefficient at this
time due to the company’s multiple reporting systems,
use of multiple agencies and booking tools. Such
reporting, where possible, is localized in nature.
BTN’s Corporate Travel 100 8 Benchmarking Summit
