INTERNATIONAL BACCALAUREATE

Business and Management Internal Assessment Should SATORP authorize per-diem for employees on short-term assignments to Singapore?

Student Name: Alma Bawzeer

Candidate Number: 000736-010

Subject: Business and Management

Centre Number: 0763

Word Count: 1974

May Session 2012

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ACKNOWLEDGMENTS

I would like to thank Mr Tim Woods, my Business and Management teacher, for his

patience, dedication and help throughout the project. Also, I would like to thank Mr AlOtaibi

for his time and help with the interviews and for answering all the doubts I had about the

situation. Moreover, I would like to thank all the employees of SATORP that were

interviewed and surveyed throughout this research, shared their expense reports and their

valuable input.

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TABLE OF CONTENTS

Executive Summary ……………………………………………………………………………………………………………..3

1.0 Introduction …………………………………………………………………………………………………………………..7

2.0 Methodology …………………………………………………………………………………………………………………8

3.0 Main Results and Findings ……………………………………………………………………………………………..9

3.1 Financial Findings ……………………………………………………………………………………………….9

3.2 Survey Findings …………………………………………………………………………………………………10

4.0 Analysis and Discussion of Results ……………………………………………………………………………….14

5.0 Evaluation ……………………………………………………………………………………………………………………16

6.0 Conclusion and Recommendations ………………………………………………………………………………18

7.0 Works Cited ........................................................................................................................ 19

8.0 Appendences ……………………………………………………………………………………………………………….20

8.1Appendix One ……………………………………………………………………………………………………….20

8.2 Appendix Two ……………………………………………………………………………………………………...21

8.3 Appendix Three ……………………………………………………………………………………………………23

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EXECUTIVE SUMMARY

SATORP is a global oil company, embarking on a new refinery project. To properly

monitor progress, its employees are required to go on business trips to different countries.

SATORP usually reimburses its employees the actual expenses that they incur in their travels

but recently, the HR manager has suggested using per-diem rates. The purpose of this

report is to determine whether SATORP should authorize per-diem for employees on short-

term assignments in Singapore.

This research was carried out by conducting primary research, such as interviews with

the HR manager to assess the situation and see what were the benefits and drawbacks of

introducing a per diem as a new business travel policy. Furthermore, surveys were

conducted with employees that usually go on business trips, to have their opinion about the

matter and how will such a decision affect their work performance. Secondary research was

used to compliment the primary research, where some employees’ expenses reports were

taken to calculate financial analysis of the situation.

By the end of this research, it is highly recommended that SATORP implements the

changes to per diem, where not only will it motivate the employees, but also result in large

cost savings for the firm.

Word Count: 198

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RESEARCH PROPOSAL

Research Question:

Should SATORP authorize per-diem for employees on short-term assignments in Singapore?

Theoretical framework:

Rationale for study:

SATORP is a global company and to properly monitor progress, its employees are required

to go on business trips to different countries. SATORP usually reimburses its employees the

actual expenses that they incur in their travels but recently, the HR manager has suggested

using per-diem rates. The purpose of this report is to determine whether that will be

beneficial for the company.

There is a dearth of research on the effects of per-diem rate on a company and my research

will contribute to the literature. Also, as SATORP is a global company, it has to send its

employees on overseas business trips very often and even small cost savings can

accumulate and be significant.

Areas of syllabus to be covered:

1. SWOT analysis - To analyse the general position of the company.

2. Maslow’s hierarchy of needs - To analyse the effect on motivation of the new policy.

3. Financial analysis - To determine the more profitable of the expense report or the per-

diem option.

4. Lewin’s Force field analysis – To discuss and evaluate the various driving and restraining

forces for the decision.

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Methodology:

Primary research

Interview the human resources manager, Mr AlOtaibi and a questionnaire for

employees to find their opinion about the proposed change.

Secondary research

The financial statements of the company and current academic opinion about the

issue from research journals, books and other sources will be discussed to predict

the effect of change on the company.

Anticipated possible difficulties and solutions:

Anticipated problems Anticipated solutions

Difficult to get an interview due to busy

schedules

Use IT and set up dates in advance

Global company so sample size is

proportionally small

Try to gain data from secondary resources to

complement primary research.

Action plan:

Task Period Remarks

Background knowledge on SATORP. 30th April 2011

Interviewing the finance director and

collecting secondary data from the

organization.

1st – 10th May Topic question slightly modified. Interview and questionnaire on the 8th.

Interviewing and handing out

questionnaires to the employees.

11th May – 1st

June

Manager absent on the 12th., so completed Interview over Skype .

Writing 1st Draft 2nd June – 3rd

September

16th June expense reports

collected.

Editing the essay. 4th September -

21st September

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Submission of draft. 22nd

September

Submitted.

Revision of first draft. 10th October –

8th November

Editing and reviewing final

draft.

Final draft due. 8th Novemeber

Word Count (Research proposal): 300

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1.0 INTRODUCTION

SATORP1 is a newly established joint venture company between the French TOTAL and

SAUDI ARAMCO oil companies to build and operate an oil refinery in Jubail, Saudi Arabia.

SATORP’s Jubail project employs thirteen international contractors to build the

refinery. The project spans a period of two years and many employees are required to travel

to contractors main offices in Europe and Far East to review the design and the progress.

SATORP’s travel policy only allows employees to claim actual expenses of their business trips

for the company to pay.

Per-diem is the specific amount of money an organization provides its employees on

business trips to spend per day (Wikipedia.com), and gives them the advantage of receiving

the remaining of the per diem if not fully used that day. SATORP’s employees have

repeatedly expressed concerns among themselves about the current business travel policy

as they are losing money during business assignments and want the company to authorize

per-diem payments as an option.

This has therefore led me to the following research question:

Should SATORP authorize per-diem for employees on short-term assignments in

Singapore?

1 SATORP: Saudi Aramco Total Oil Refining Petrochemical company.

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2.0 METHODOLOGY

To determine whether SATORP should proceed with per-diem payments to cover their

employees expenses on their business trips, primary research was undertaken, as a survey

was conducted in the company premises and the employees were informed that their

responses will be kept confidential.

Furthermore, the interview with Mr AlOtaibi was conducted at three different timings, once

in person, and twice over “Skype”. The questions were sent in advance to the manager to

allow for the preparation of thoughtful answers.

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3.0 MAIN RESULTS AND FINDINGS

Financial Findings:

To analyse the financial effects of the change in policy, the expense reports2 of the

employees on previous trips were analysed. The data is given in Table 1 below:

Actual Expense

Days

Per Diem

Amount required

Variance

8851.06 13 6076 2775.06

9738.44 9 4167 5571.44

8599.25 13 6076 2523.25

12902.64 17 7871 5031.64

4279.21 13 6076 -1796.79

3864.09 5 2315 1549.09

22121.33 11 6063 16058.33

6400 6 3063 3337

5334.73 5 2486 2848.73

6175.31 13 6019 156.31

4451.77 16 7408 -2956.23

92717.83

57620 35097.83

Table 1: Actual expenses and days of employees’ business trips, and per diem amount required to cover expenses.

The first column gives the expenses that were actually claimed by the employees. The per

diem amount is calculated based on rates given by US department of state.3 If the company

had a per diem policy rather than an expense account policy, the company would have

saved, on average, 37.85%. This is a huge cost saving especially given the fact that this is a

regular expense for the company.

2 Reference in the appendences.

3 http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1172

0 20000 40000 60000 80000 100000

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Per Diem Amount required Actual Expense

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Survey analysis:

These results have been deduced from the surveys that were conducted with the employees

of SATORP, which can be found in the appendences.

Figure 1: Effect of per diem on motivation to work

The per diem rate is normally perceived as good by the employees. Most employees believe

it will significantly improve (50%) or improve (20%) their motivation. None of the employees

believed it will worsen it.4

4 Fig 1.

50%

20%

30%

0% 0%

Effect on Motivation to work

Significantly improve motivation

Improve motivation

No change in Motivation

Demotivate

Significantly demmotivate

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Figure 2: Box and Whisker plot of response to reasonable amount

of money required in per-diem rate to live comfortably.

Employees gave a range of answers for reasonable amount to cover their expenses (fig 2.)

but the average was $400. 75% of employees selected amounts between $180 and $510.

The recommended amount by US government, also is used by the company, is $4635 hence

the company should be able to keep its employees happy with a per-diem rate of $463.

5 http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1141

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Table 2: Effect of an expense account on overall spending (self-reported and on others)

As this can be seen from table 2, most employees believe that an expense account

encourages significant overspending (30%) or overspending (40%) by them. 60% also believe

that it encourages significant over-spending or overspending (30%) by others. This shows

that the general consensus is that there is significant over-spending due to the expense

policy. This makes sense as with no limits over how much the employees can spend, the

employees are more likely to engage in over-spending.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Effect of expense account on overall spending

0

1

2

3

4

5

6

7

Effect on others of expense account on overall spending

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Figure 3: Effect of per-diem rate on ability to do business

Employees also believed that a limited amount per month will limit their ability to do

business. This is shown in the figure 3. Many employees may choose to save the per-diem

amount they receive and hence may end up cutting corners which will hurt the business. For

example, they may refuse to take a client out for dinner even if it may help them build long-

term business relationship. They may also choose to travel in cheaper cabs and stay in

cheap hotels which may affect the image of the company in front of important clients.

Will per diem effect ability to do business?

Significantly worsen the abilityto do business

Worsen the ability to dobusiness

No effect

Will improve ability to dobusiness

Will significantly improve theability to do business

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4.0 ANALYSIS AND DISCUSSION OF RESULTS

A SWOT analysis diagram was done to assess SATORP’s current position as a company.

Strengths

World leader in oil refinery and related business.

Strong financial position and established image as an innovative and ethical company.

Global business and attracts talent all over the world.

World’s largest oil reserve.

Weaknesses

Shortage of experienced local expertise.

Its remote location discourages some expertise in joining the company.

Opportunities

High demand for petrochemical bi-products, hence they can expand in their business.

Threats

Volatile oil market prices.

Table 3: SWOT Analysis of SATORP.

The company is a world leader in oil refinery business and has a very strong financial

position. It is able to attract talent from all over the world and is able to exploit competitive

advantage of countries across the globe due to its multi-national nature.

However, their main weakness is shortage of local talent. Due to its vast operations, they

are operating in countries where local talent is not enough to meet all their needs. Some of

the locations are also very remote and this discourages people from joining. The company

makes up for this by keeping people connected through technology and also by regularly

flying experts around different locations. It is the reason why this research question is so

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important, as even though the company needs to keep costs at a minimum, it must also

ensure that enough talented people are available to solve problems worldwide.

Oil refining is an unpredictable business as the oil prices keeps fluctuating but in recent

months; the high demand for petro-chemical bi-products is driving business forward. As the

company has the highest oil reserves in the world so the only serious problem is the lack of

talent.

Maslow’s hierarchy of needs:

A per-diem allowance will allow the workers to spend fewer amounts than they

normally would, and save the rest on themselves. This may increase in motivation but also

may make them less likely to spend

money, even then it would be beneficial

from a business point of view, where they

may be reluctant take out clients. Most

employees seem to think that the effect

on motivation will not be significant. This

is supported by our survey finding where

majority (50%) agreed that it will actually

improve motivation.

Maslow’s hierarchy of needs can help us analyse the effect of motivation. Maslow’s

theory focuses on the psychological needs of workers, as he believed that people are

motivated by factors other than money.

These psychological needs, as seen in Figure 4, must be met in order to motivate the

employee. Maslow’s research presented five levels of needs, called the hierarchy of needs.

Where workers would need to be satisfied with all lower level needs being met before they

could progress to higher level needs (Hoang 272).

Most of the workers on short-term assignments are consultants or senior managers;

hence it can be presumed that their lower order needs are satisfied. They should be

Figure 4 : Maslow's hierarchy of needs theory pyramid.

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primarily motivated by the challenge of the job and their self-esteem for doing the work. It

is unlikely they will face financial problems. A per-diem allowance hence should have no

effect on the motivation of the workers.

Still, the per-diem allowance should be enough to cover their basic physiological needs

such as food and lodgings. As the average amount required (as per the survey: $400) to

cover living expenses is less than the amount company is planning to pay (as per

recommendation of US department of state: $463), it is unlikely employees will face

problems.

5.0 EVALUATION

The force field analysis can help us analyse the driving and restraining forces for this

decision. The weightages are assigned in consultation with Mr AlOtaibi who has a good

experience with the employees of the company and hence is in a better position to analyse

the decision.

Weightage Driving forces Restraining forces Weightage

5 Makes employees responsible for controlling their expenses.

Employee losing money due to other expenses incurred which are not covered by the company.

5

2 Allows employee more freedom in selecting accommodation and services on their business trip.

May hinder ability of the employees to do business.

5

4 Simplifies the process of producing expense reports, hence spending less time on them.

11 Total Total 10

Table 4: Lewin's Force Field Analysis of introducing rep diem to SATORP’s travel policy.

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The weightage for each force was decided in consultation with Mr AlOtaibi as he is in a good

position to determine the importance of each factor due to his experience with the firm.

The change will make employees responsible for controlling their expenses and hence will

encourage them to conserve costs. This is a very important factor as it can have a direct

impact on the bottom line.

It will also allow employees more freedom in selecting their accommodation and dining.

Employees who want to stay in more expensive hotels than the company allows can pay the

extra amount out of pocket while employees who are content with cheaper hotels may save

money. This may motivate the employees but still is not considered an important factor as

the employees are there to do business at the end of the day and some discomfort is

expected.

Changing the policy also allows the employees to spend without worrying about expense

reports. Under the current policy, they have to keep each and every receipt which is

troublesome and time consuming. The finance department also has to verify and cross

check everything. This result in a huge wastage of time and a policy change will reduce the

cost in terms of time wasted significantly.

However, a policy change means that employees will have to fit in their expenditure within

the budget allocated and hence they are liable to lose money. This may make them more

conservative in their spending habits and hence may lead them to hold back spending

money even where it can benefit the company. Still, if the company implements are policy

where extra-ordinary expenses can be claimed, this problem can be avoided.

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6.0 CONCLUSION AND RECOMMENDATIONS

As can be seen, the driving forces outweigh the restraining forces hence the company

should implement the change. It will not only improve motivation but will also result in large

cost savings for the firm.

Employees will be given more freedom; they will be able to decide whether to save money

or to spend a little extra for a more comfortable stay. It will also make them responsible for

their own finances and hence encourage responsible behaviour.

To counter any negative effect of the policy, the company can implement an expense

reimbursement policy for extra-ordinary expenses for example doing a favour for a client.

The company can also continuously monitor the situation and perhaps introduce the policy

in several stages to ensure the change is actually beneficial for the company. The executives

should also be given some guidance on budgeting to help them monitor their finances.

Limitations and future recommendations:

The research uses self-reported data that may be biased and inaccurate. Many of the finding

depend on the survey and interview from the manager, where they may have an incentive

to choose the option that will end up benefiting them financially even if doesn’t benefit the

company. On-going research is required to ensure that implementation of the per-diem

policy doesn’t result in an increase in expenses for the company.

The company should research whether a hybrid of the two methods will be more suitable.

For example, a fixed amount can be given for lodging and meals while an expense approach

can be taken for incidentals and other expenses. This will limit the disadvantages of both

methods.

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7.0 Works Cited

Hoang, Paul. Business & Management. [Melton, Vic.]: IBID, 2007. Print.

Home :: SATORP :: Saudi Aramco Total Refining and Petrochemical Co. Web. 12 June

2011.

<http://www.satorp.com/>.

"Maslow's Hierarchy of Needs - Motivation Theory." Abraham Maslow - Father of Modern

Management Psychology. Web. 07 Oct. 2011.

<http://www.abraham-maslow.com/m_motivation/Hierarchy_of_Needs.asp>.

"Per Diem." Wikipedia, the Free Encyclopedia. Web. 02 July 2011.

<http://en.wikipedia.org/wiki/Per_diem>.

U.S. Department of State | Welcome to Office of Allowances. Web. 07 Aug. 2011.

<http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1092>

U.S. Department of State | Welcome to Office of Allowances. Web. 08 Aug. 2011.

<http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1141>

U.S. Department of State | Welcome to Office of Allowances. Web. 08 Aug. 2011.

<http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1169>

U.S. Department of State | Welcome to Office of Allowances. Web. 08 Aug. 2011.

< http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1172>

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8.0 APPENDECES

8.1 Appendix One

Questionnaire

Hello, my name is Alma Bawzeer, I’m doing this survey to complete my graduation

requirements towards my IB Diploma program.

Your responses will be kept anonymous and will only be shared in the aggregate, so

please try to be as honest as possible. The company is thinking about of introducing

a per-diem rate such that instead of you having an expense account, you will be

given a fixed amount of money each day.

Questions:

1. How will this affect your motivation to work?

Significantly

improve it

Improve

slightly

Remain the

same

Decrease it Significantly

decrease it

2. How much amount do you think will be sufficient for daily expenses

without making finance a big issue?

__________

3. Do you think an expense account encourages overspending by you?

Significant

overspending

Slight

overspending

No change Under-

spending

Significant

under-

spending

4. Do you think an expense account encourages overspending by others?

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Significant

overspending

Slight

overspending

No change Under-

spending

Significant

under-

spending

5. Will a limited amount affect your ability to conduct business (take out a

client for dinner… etc.)

Will

significantly

limit my

ability to do

business

Will limit my

ability to do

business

No change Will improve

my ability to

do business

Will

significantly

improve my

ability to do

business

6. What is your number one concern related to the current reimbursement

policy for business travel to Singapore?

_____________________________________________________________

_____________________________________________________________

7. What is your motivation for requesting full per diem?

_____________________________________________________________

_____________________________________________________________

8. Why, in your opinion, should the company allow full per diem?

_____________________________________________________________

_____________________________________________________________

9. How many and how long where the business assignments you undertook

since the beginning of 2011?

_____________________________________________________________

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8.2 Appendix Two

Interview (With SATORP’s Financial Representitve)

Question: Does SATORP’s business travel expenses policy allow full per diem for business

related activities?

Answer: Full per diem is the daily amount to cover transportation, meals, incidentals and

lodging expenses for employees travelling on offices.

SATORP policy only allows for meals, incidentals, transportation and lodging expenses to be

claimed and reimbursed based on reasonable and actual expenses.

Question: In your view, is there a benefit from company perspective to use full per diem

rates instead of actual expenses?

Answer: Per diem rates can be a good alternative to having to account for actual business

expenses incurred. However, it is not as if there's no substantiation required at all. The

employee must still account for the time, place, and business purpose of the expense. In my

opinion, if you would rather not have to keep up the strictures of an accountable plan, the

lessened burden of the per diem is a plus. It also tends to cut down on the expenditures of

employees.

So, which is better?

To me, it comes down to two issues:

1. Recordkeeping. If you would rather not have to keep up the strictures of an accountable

plan, the lessened burden is a plus. It also tends to cut down on the expenditures of

employees (validate)

2. Cost difference. If you're finding that actual costs incurred far exceed the per diem rates,

then it makes more sense to go with per diem rates.

Travel expenses incurred while on business will be paid for by SATORP if the expenses are

reasonable, properly approved and documented.

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Business approved travellers who incur such expenses should neither lose nor gain personal

funds as a result. This statement covers reimbursement for air transportation, car rentals,

hotel lodging, meals, gratuities, tolls and parking, telephone calls, and other miscellaneous

expenses.

Actual reasonable expenses will be reimbursed subject to the limits set forth in company

guidelines.

Benefits of actual lodging and meal expenses in lieu of per diem:

* The traveller is required to attend a meeting or conference where meals and lodging

must be obtained at a prearranged place, and lodging consumes all or most of the per diem

allowance

* The business trip is to an area where lodging and meal costs have temporarily

increased because of a special event or function (e.g., a national or international sports

event)

* The business trip is to an area where lodging and meal costs have temporarily

increased because of a special event or function and affordable lodging is not available

within a reasonable commuting distance or the costs of commuting consume the savings

from occupying less expensive lodging

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8.3 Appendix Three

Different Expense Reports

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