Reducing Electrovision’s Travel and Entertainment Costs Essay

Reducing Electrovision’s Travel and Entertainment Costs Here is the study you requested January 30 on Electrovision’s travel and amusement costs. Your intuition was right. We are passing far excessively much on concern travel. Our unwritten policy has been “anything goes. ” go forthing us with no existent control over T & A ; E disbursals. Although this hands-off attack may hold been apprehensible when Electrovision’s net incomes were high. we can no longer afford the luxury of traveling first category.

The solutions to the job seem instead clear. We need to hold person with centralised duty for travel and amusement costs. a clear statement of policy. an effectual control system. and a business-oriented travel service that can optimise our travel agreements. We should besides look into options to go. such as videoconferencing. Possibly more of import. we need to alter our attitude. Alternatively of sing travel financess as a bottomless supply of money. all going employees need to move as though they were paying the measures themselves. Geting people to conserve is non traveling to be easy.

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In the class of researching this issue. I’ve found that our employees are extremely attached to their excellent travel privileges. I think they would about prefer a cut in wage to a loss in travel moderateness. One thing is clear: Peoples will be really acrimonious if we create a two-class system in which top executives get particular privileges while the remainder of the employees make the forfeits. I’m thankful to Mary Lehman and Connie McIlvain for their aid in roll uping and screening through five years’ worth of expense studies. Their attempts were genuinely Herculean. Thankss for giving me the chance to work on this assignment. It’s been a existent instruction. If you have any inquiries about the study. delight give me a call.

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This study analyzes Electrovision’s travel and amusement ( T & A ; E ) costs and nowadayss recommendations for cut downing those costs. Travel and Entertainment Costss Are Too High Travel and Entertainment is a big and turning expense class for Electrovision. The company spends over $ 16 million per twelvemonth on concern travel. and these costs have been increasing by 12 per centum yearly. Company employees make approximately 3. 390 trips each twelvemonth at an mean cost per trip of $ 4. 720. Airfares are the biggest disbursal. followed by hotels. repasts. and rental autos.

The nature of Electrovision’s concern does necessitate extended travel. but the company’s costs appear to be inordinate. Every twelvemonth Electrovision employees spend more than twice every bit much on T & A ; E as the norm concern traveller. Although the location of the company’s installations may partially explicate this disagreement. the chief ground for Electrovision’s high costs is the firm’s doctrine and managerial manner. Electrovision’s tradition and its hands-off manner about invite employees to travel first category and pay comparatively small attending to go costs. Cuts Are Essential

Although Electrovision has traditionally been insouciant about travel and amusement disbursals. direction now recognizes the demand to derive more control over this component of costs. The company is presently come ining a period of worsening net incomes. motivating direction to look for every chance to cut down disbursement. At the same clip. lifting airfares and hotel rates are doing travel and amusement disbursals more of import to the bottom line.

Electrovision Can Salvage $ 6 Million per Year Fortunately. Electrovision has a figure of first-class chances for cut downing its travel and amusement costs. Savingss of up to $ 6 million should be accomplishable. judgment by the experience of other companies. American Express suggests that a reasonable travel-management plan can salvage companies every bit much as 35 per centum a twelvemonth ( Gilligan 39-40 ) . Given that we purchase many more excellent tickets than the mean company. we should be able to accomplish even greater nest eggs. The first precedence should be to engage a manager of travel and amusement to presume overall duty for T & A ; E disbursement.

This person should set up a written travel and amusement policy and make a budget and a cost-control system. The manager should besides retain a countrywide travel bureau to manage our reserves and should take an probe into electronic options to go. At the same clip. Electrovision should do employees aware of the demand for moderateness in travel and amusement disbursement. Peoples should be encouraged to waive any unneeded travel and to conserve on air hose tickets. hotels. repasts. rental autos. and other disbursals. In add-on to conserving on an single footing. Electrovision should look for ways to cut down costs by negociating discriminatory rates with travel suppliers. Once retained. a travel bureau should be able to carry through this.

Finally. we should look into the options to go. Although we may hold to put money in videoconferencing systems or other equipment. we may be able to retrieve these costs through decreased travel disbursals. I recommend that the new travel manager undertake this probe to do certain it is good integrated with the remainder of the travel plan. These alterations. although necessary. are likely to ache morale. at least in the short term. Management will necessitate to do a determined attempt to explicate the principle for decreased disbursement. By exerting moderateness in their ain travel agreements. Electrovision executives can put a good illustration and assist other employees accept the alterations. On the plus side. cutting back on travel with videoconferencing or other options will cut down the travel load on many employees and assist them equilibrate their concern and personal lives much better.

Electrovision has ever encouraged a important sum of concern travel. believing that it is an effectual manner of operating. To counterbalance employees for the incommodiousness and emphasis of frequent trips. direction has authorized generous travel and amusement ( T & A ; E ) allowances. This doctrine has been good for morale. but the company has paid a monetary value. Last twelvemonth Electrovision spent $ 16 million on T & A ; E– $ 7 million more than it spent on research and development. This twelvemonth the cost of travel and amusement will hold a bigger impact on net incomes. owing to alterations in airfares and hotel rates. The timing of these alterations is unfortunate because the company anticipates that net incomes will be comparatively weak for a assortment of other grounds. In visible radiation of these net income force per unit areas. Dennis McWilliams. Vice President of Operations. has asked the accounting section to take a closer expression at the T & A ; E budget.

Purpose. Scope. and Restrictions

The intent of this study is to analyse the T & A ; E budget. measure the impact of recent alterations in airfares and hotel costs. and suggest ways to fasten management’s control over T & A ; E disbursals. Although the study outlines a figure of stairss that could cut down Electrovision’s disbursals. the precise fiscal impact of these steps is hard to project. The estimations presented in the study provide a “best guess” position of what Electrovision can anticipate to salvage. Until the company really implements these stairss. nevertheless. we won’t cognize precisely how much the travel and amusement budget can be reduced.

Beginnings and Methods

In fixing this study. the accounting section analyzed internal disbursal studies for the past five old ages to find how much Electrovision spends on travel and amusement. These figures were so compared with mean statistics compiled by Dow Jones ( publishing house of The Wall Street Journal ) and presented as the Dow Jones Travel Index. We besides analyzed tendencies and suggestions published in a assortment of concern diary articles to see how other companies are get bying with the high cost of concern travel.

Report Organization

This study reviews the size and composing of Electrovision’s travel and amusement disbursals. analyse tendencies in travel costs. and recommends stairss for cut downing the T & A ; E budget.

Although many companies view travel and amusement as an “incidental” cost of making concern. the dollars add up. At Electrovision the measure for airfares. hotels. rental autos. repasts. and amusement totaled $ 16 million last twelvemonth. Our T & A ; E budget has increased by 12 per centum per twelvemonth for the past five old ages. Compared with the mean U. S. Business’s travel outgos. Electrovision’s outgos are high. mostly because of management’s generous policy on travel benefits. $ 16 Million per Year Spent on Travel and Entertainment

Electrovision’s one-year budget for travel and amusement is merely 8 per centum of gross revenues. Because this is a comparatively little disbursal class compared with such things as wages and committees. it is alluring to disregard T & A ; E costs as insignificant. However. T & A ; E is Electrovision’s third-largest governable disbursal. straight behind wages and information systems. Last twelvemonth Electrovision forces made about 3. 390 trips at an mean cost per trip of $ 4. 720.

The typical trip involved a round-trip flight of 3. 000 stat mis. repasts and hotel adjustments for two or three yearss. and a rental auto. Approximately 80 per centum of the trips were made by 20 per centum of the staff–top direction and gross revenues forces traveled most. averaging 18 trips per twelvemonth. Figure 1 illustrates how the travel and amusement budget is spent. The largest classs are airfares and housing. which together account for $ 7 out of every $ 10 that employees spend on travel and amusement. This disbursement dislocation has been comparatively steady for the past five old ages and is consistent with the distribution of disbursals experienced by other companies.

Figure 1 Airfares and Lodging Account for Over Two-Thirds of Electrovision’s Travel and Entertainment Budget

Although the composing of the T & A ; E budget has been consistent. its size has non. As mentioned earlier. these outgos have increased by about 12 per centum per twelvemonth for the past five old ages. approximately twice the rate of the company’s growing in gross revenues ( see Figure 2 ) . This rate of growing makes T & A ; E Electrovision’s fastest-growing disbursal point.

Figure 2 Travel and Entertainment Expenses Exceed National Averages Electrovision’s Travel Expenses Exceed National Averages Much of our travel budget is justified. Two major factors contribute to Electrovision’s high travel and amusement budget:

•With our central offices on the West Coast and our major client on the East Coast. we of course spend a batch on cross-country flights. •A great trade of travel takes topographic point between our central offices here on the West Coast and the fabrication operations in Detroit. Boston. and Dallas. Corporate directors and division forces make frequent trips to organize these disparate operations. However. even though a good part of Electrovision’s travel budget is justifiable. our travellers spend considerable more on travel and amusement than the mean concern traveller ( see Figure 3 ) .

Figure 3 Electrovision Peoples Spend Over The Dow Jones Travel Index calculates the mean cost per twenty-four hours of concern travel in the United States. based on mean airfare. hotel rates. and rental auto rates. The mean fluctuates hebdomadal as travel companies change their rates. but it has been running approximately $ 1. 000 per twenty-four hours for the last twelvemonth or so. In contrast. Electrovision’s mean day-to-day disbursal over the past twelvemonth has been $ 2. 250—125 per centum higher than norm. This figure is based on the mean trip cost of $ 4. 720 listed earlier and an mean trip length of 2. 1 yearss.

Spending Has Been Encouraged

Although a assortment of factors may lend to this derived function. Electrovision’s comparatively high T & A ; E costs are at least partly attributable to the company’s doctrine and direction manner. Because many employees do non bask concern travel. direction has tried to do the trips more pleasant by authorising first-class airfare. luxury hotel adjustments. and life-size rental autos. The gross revenues staff is encouraged to entertain clients at top eating houses and to ask for them to cultural and clean events. The cost of these privileges is easy to overlook. given the failing of Electrovision’s system for maintaining path of T & A ; E disbursals:

•The monthly fiscal records provided to direction make non incorporate a separate class for travel and amusement ; the information is buried under Cost of Goods Sold and under Selling. General. and Administration Expenses. •Each section caput is given authorization to O.K. any expense study. irrespective of how big it may be. •Receipts are non required for outgos of less than $ 100. •Individuals are allowed to do their ain travel agreements. •No one is charged with the duty for commanding the company’s entire disbursement on travel and amusement.

During the past three old ages. the company’s healthy net incomes have resulted in comparatively small force per unit area to force for tighter controls overall facets of the concern. However. as we all know. the state of affairs is altering. We’re projecting level to worsening net incomes for the following two old ages. a state of affairs that has prompted all of us to seek for ways to cut costs. At the same clip. lifting airfares and hotel rates have increased the impact of T & A ; E disbursals on the company’s fiscal consequences.

Lower Net incomes Underscore the Need for Change

The following two old ages promise to be hard for Electrovision. After several old ages of steady additions in disbursement. the Postal Service is fastening procurement policies for automated mail-handling equipment. Support for the A-12 optical character reader has been canceled. As a effect. the selling section expects gross revenues to drop by 15 per centum. Although Electrovision is negociating several assuring R & A ; D contracts with nongovernmental clients. the selling section does non anticipate any major procurances for the following two to three old ages.

At the same clip. Electrovision is confronting costs increases on several foreparts. As we’ve known for several months. the new production installation now under building in Salt Lake City. Utah. is behind agenda and over budget. labour contracts in Boston and Dallas expire within the following six months. and works directors at that place anticipate that important wage and benefits grants may be necessary to avoid work stoppages. Furthermore. selling and advertisement costs are expected to increase as we attempt to beef up these activities to better header with competitory force per unit areas. Given the expected diminution in grosss and addition in costs. the Executive committee’s anticipation that net incomes will fall by 12 per centum in the coming financial twelvemonth does non look excessively pessimistic.

Airfares and Hotel Ratess Are Rising

Business travellers have grown accustomed to frequent menu wars and discounting in the travel industry in recent old ages. Excess capacity and aggressive monetary value competition. peculiarly in the air hose concern. made travel a comparative deal. However. that state of affairs has changed. as weaker rivals have been forced out and the staying participants have grown stronger and smarter. Airlines and hotels are better at pull offing stock list and maintaining tenancy rates high. and high tenancy translates into higher monetary values because providers have lupus erythematosuss ground to vie on monetary value. Last twelvemonth saw some of the steepest rate hikings in old ages. Business airfares ( tickets most likely to be purchased by concern travellers ) jumped over 40 per centum in many markets. The tendency is expected to go on. with rates increasing another 5 to 10 per centum overall ( Phillips 331 ; “Travel Costss Under Pressure” 30 ; Dahl B6 ) . Given the fact that airfare and hotel costs account for 70 per centum of Electrovision’s T & A ; E budget. the tendency toward higher monetary values in these two classs will hold serious effects on the company’s disbursals unless direction takes action to command these costs.

By implementing a figure of reforms. direction can anticipate to cut down Electrovision’s T & A ; E budget by every bit much as 40 per centum. This estimation is based on the general appraisal made by American Express ( Gilligan 130-140 ) and the fact that we have an chance to significantly cut down air travel costs by cut downing or extinguishing excellent travel. However. these steps are likely to be unpopular with employees. To derive credence for such alterations. direction will necessitate to sell employees on the demand for moderateness in travel and amusement allowances.

Four Ways to Pare Expenses

By researching what other companies are making to control travel and amusement disbursals. the accounting section has identified four outstanding chances that should enable Electrovision to salvage about $ 6 million yearly in travel-related costs.

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