White Paper Benchmark

travel

WHITEPAPER

BENCHMARKINGSAVINGS

NOVEMBER 2008

© 2008, Nielsen Business Media770 Broadway, New York, NY 10003

Coming To Terms OverTravel Management Savings

Corporate Travel100 CompaniesPursue Consensus

A BTN white papersponsored by BCDTravel, Delta AirLines, TPGHospitality andManhattan’s TudorHotel

As business travel management programs within companiesmature, it becomes increasingly incumbent on business travel buyersto accurately define savings to more clearly communicate to seniormanagement the value of such efforts.

This is hardly a challenge for new travel management programs,which quickly can yield 10 percent to 25 percent savings simply byconsolidating and leveraging spending volume. Once the easilyreached, ripened fruit has been picked, however, what is the personwho is responsible for the function of travel management to do for anencore? 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 waystravel buyers define savings.

This white paper and the research efforts from which these findingswere drawn are the results of the need expressed by several of the100 largest buyers of business travel services in the United States toattempt to determine a standard definition or definitions for travelmanagement savings.

In fact, the impetus for this effort came directly from a questionraised by Philips International vice president of global commoditymanagement John Guarneri during BTN’s Corporate Travel 100Benchmarking Summit in May during the Association of CorporateTravel Executives/Corporate Travel World conference in Washington,D.C. While many in attendance that day were quick to respond toGuarneri’s call to seek a common definition, it was Philips controllerHubert Cui who fully articulated the concepts that the CorporateTravel 100 buyers and Business Travel News, with the support of BCDTravel, Delta Air Lines, TPG Hospitality and Manhattan’s Tudor Hotel,attempted to define.

Cui spelled out questions in four basic areas: How does your organ-ization define travel-related savings, audit such savings, differentiatesavings efforts from changes in external conditions and determine thelevel of detail that it requires?

Travel buyers from about two dozen companies that spent the moston travel from U.S. points of sale in 2007 responded to a survey thatBusiness 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 benchmarkingeffort included Bank of America, BearingPoint, Bristol-Myers Squibb,ConocoPhillips, Credit Suisse, Deutsche Bank, Ernst & Young,Honeywell, Johnson & Johnson, Marsh & McLennan, Merck, MerrillLynch, News Corp., Oracle, Pfizer, Philips, PricewaterhouseCoopers,Reed Elsevier, Siemens, Thomson Reuters, the United Nations, Verizonand Wal-Mart.

What follows are their efforts to reach some kind of consensus indefining these terms.

2

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WHITE PAPERABENCHMARKING

SAVINGS

The blurring of the linesbetween sourcing and

travel managementapproaches, dire eco-nomic conditions, risingprices and decreasedtransaction volumes

have complicated thecost-savings equation.

• • • • • • • •

Recent efforts by some of America’s largest corporate travel buyers todevelop 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, generallyspeaking, were two different approaches: a more multifaceted and granularone taken by those who report into purchasing or shared services organiza-tions and the approach followed by those who report into other areas withincompanies.

The group of Corporate Travel 100 buyers who report to purchasing orshared-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 futuresavings opportunities.

While corporations apply different weights and measures to these factors,some are more straightforward in their calculations by applying an orthodoxyear-over-year expenditure reduction as their savings evaluation within eachsupplier category.

One corporate travel buyer responding to the survey defined cost savingsas “straight reductions from previously sourced or new sourcing areas basedon relation to market,” cost avoidance as “avoidance of previously or tradi-tionally based costs either through negotiation or process/implementationimprovement,” and one-time savings as “savings that may be given as anincentive or is based on a one-time need or limited supply, not realized on anannual basis.”

Another buyer said all savings methodology is defined as an “action takenby global procurement that results in a reduction against” one of three base-lines: “previous price paid, internal proxy or relevant external pricing forgoods or services not currently purchased, or—for service-based contractswhere no previous unit price exists—lowest competitive legitimate bid orbest legitimate proposal as the relevant comparable pricing baseline.”

For another company, the savings equation includes hard savings or thosethat have a direct impact on the bottom line, contract-based savings derivedfrom negotiated prices, project-based savings from supply-based and produc-tivity improvements and “one-off improvements” or soft-dollar savings, suchas value-added services.

Meanwhile, some of these long-held internal standards are in need ofrefining as measuring cost savings in today’s economic environment hasbecome an increasingly cumbersome and troubling task for corporate travelbuyers.

The combination of several factors, including the blurring of the linesbetween sourcing and travel management approaches, dire economic marketconditions, rising prices and, for many, decreased transaction volumes havecomplicated 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-

Savings: A Defining Moment

4


SAVINGS

At one company,pooled volume is a“religion” in order to

account for unmanagedspending and to deter-mine the spending overwhich they have influ-ence, but the “level ofreligion changes with

the economy.”• • • • • • • •


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 subtractingactual cost after contract is applied.”

Meanwhile, some companies build on top of that baseline by measuringsavings associated with online versus offline average ticket prices, class ofservice, domestic average ticket prices, international average ticket pricesand limiting analysis to top citypairs. Further obfuscating the issue is the pro-liferation of such ancillary charges as baggage fees, inflight purchases andseat upgrades. Travel buyers largely have yet to successfully net such fees outof the base volumes.

In a time of rising airfares, during which many companies are scaling downtheir transaction volumes, new decision-making processes around savingsdefinition and generation are emerging.

One Corporate Travel 100 buyer provided the example of volume fluctua-tions on a domestic citypair. “I bought 1,000 units last year at $100 a unit. Thisyear, through negotiations, I am able to bring it down to $95 a unit, but I did1,200 units,” the buyer said. “Are my savings on the $5 difference on the1,000 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 decrementyour savings.”

While this buyer’s company is using a conventional methodology, othercompanies choose the option of throwing the additional segments into a“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 thegross cost of the fare subtracted from the actual cost after the contractuallydetermined discount is applied.

While hotel and car rental savings performance metrics employ at leastsome level of commonality, such as average cost per rental day, companiesdiffer in these categories in the ways that they measure them when theybreak them down more granularly.

One axiomatic measurement of hotel savings is the year-over-year cost pernight differential, but buyers are struggling with applying specific market con-ditions into the equation, including market demand, seasonal rate fluctuationand currency exchange rates. One Corporate Travel 100 buyer said he isn’tpermitted to claim exchange rate differentials when presenting the savingsperformance, but providing this analysis gives senior management the viewinto “what is impacting the cost savings or increases.”

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 morestraightforward approach of applying the pooled volume, including preferredhotel bookings and bookings that go outside of preferred channels. At onecompany, pooled volume is a “religion” in order to account for unmanagedspending and to determine the portion of the spending over which they haveinfluence, 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, theneed to display savings for these categories also has wrought different sav-ings interpretations.

One Corporate Travel 100 company travel buyer uses the first room ratereceived during the meetings request-for-proposals process as the savingsbenchmark. Another buyer takes a more liberal approach to meetings savingsmeasurements by using the negotiated rate versus the “standard corporate”

5


SAVINGS

One buyer calculatessavings on a budget

versus actual compari-son, “so if a meeting

budget was $1 millionand the meeting was

negotiated at$500,000, then they

would take the$500,000 in savings.”

• • • • • • • •


rate, which shows an inflated savings number because daily room rates in agroup block often are lower than transient rates, and in some cases meetingpackages 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 forannual meetings, leaving out destination-specific price impacts as well as theimpact of one-off and ad hoc meetings. Then, there is the question of whento 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 abudget versus actual comparison, “so if a meeting budget was $1 million andthe meeting was negotiated at $500,000, then they would take the $500,000in savings.”

Just as volume reductions and rising costs affect travel supplier savings,they also affect corporate card program savings calculations. As volumesdecline, so will rebates and/or incentives—considerable bonus revenuestreams for many companies.

Yet, this is an area where buyers consider themselves able to exert someinfluence by pushing further compliance to the card. However, in this areathere also are myriad ways to measure the savings from the program, includ-ing breaking out the volume effects and taking out central management feesfrom the rebates. Savings can be measured year over year or over the life ofthe card program, which typically is a multiyear deal. In addition, rebatesoften are not received until more than a year after the calendar year in whichthe rebate is attached.

Meanwhile, such nascent managed categories as remote conferencing areproviding further headaches. With remote conferencing facilities costing hun-dreds of thousands or even millions of dollars, travel buyers are finding them-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-ance factors when applicable.

Using technological alternatives isn’t the only form of demand manage-ment that can affect savings negatively by reducing volumes, underminingnegotiated discount deals with suppliers. As buyers are pushing variouslevers, such as sliding advance-purchase thresholds, altering business classthreshold allowances and moving more reservations online, total programvalue measurement is paramount in the benefit equation of the managed cor-porate travel program.

As demand management rises in importance for many corporations in thiseconomy, it also muddies the savings waters as companies focus on reducingtrips to cut costs and battle rising prices. Thus, some Corporate Travel 100buyers are applying a new measurement: cost savings plus avoidance equalstotal benefit. This underscores the fact that straight cost savings or reductionis 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 formof measurement.

While there is no universal method or gold standard in applying any of thesemeasurements, travel buyers are wrestling with similar issues in cost savings.Despite corporations’ disparate stances and varied methodologies and anincreased focus on straightforward cost reductions—at least for some compa-nies—some common characteristics have surfaced. Travel buyers can wieldthese 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 travelbuyer brings to the table.

6


SAVINGS

According to some buyers, savings do not

count until they areaudited. “Our entirebeing is measuring

what we save,”one said.

• • • • • • • •

Once companies define savings, they employ a variety of methods to auditthe savings that travel departments generate. Despite different methodolo-gies in the frequency of the audits, the type of data used, the metrics usedand the authoritative level that is required to sign off on the audits, buyersagree that some sort of oversight on savings is necessary. Some buyers evensaid that their savings did not count until they were audited. “Our entire beingis measuring what we save,” one buyer said.

Part of the challenge in auditing travel savings is the transcendence of theprogram’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 canhave varying percentages of employees who travel. What follows includessome 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 mostoften turn to in auditing their savings performance are corporate card dataand booking/agency data. Many buyers use a combination of those twosources for auditing purposes when available.

Both data streams have their strengths and weaknesses. Corporate carddata 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 certainsupplier sources. Booked data, meanwhile, is immediately available but oftencan differ from what is actually paid by the traveler.

One buyer reported using an agency consulting group to measure air, carand hotel expenses, consolidating data feeds from four separate travel agen-cies. The company in turn takes that data and translates it to a procurementdashboard tool.

The buyer uses agency data over card data because of the detail availablecompared with corporate card data. As a result, the buyer said air data is verygood, car data is adequate but hotel data is understated because hotels oftenare not booked through the agency. For now, the buyer is comfortable with themargin of error, but there are plans for an enterprise system to help getexpense reporting data that can assist in filling in the blanks.

Another buyer said the company receives savings reports directly from theagency, supplemented by a third-party consulting company to support thecompany’s global airline requests for proposals and quarterly audits.

Corporate card suppliers, meanwhile, are working on enhancements to thedata they can provide travel buyers. Detailed electronic hotel folio data, forexample, now is available at many properties across most major hotel brands.

One buyer said the current policy is to use corporate card data for airlinesonline, with agency data used for hotel and car rental costs. However, thebuyer said that the company this year is switching to card data for hotel andcar 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 savingsaudits. The general ledger data is the best indicator of savings, the buyer said.

Once the data source or sources are determined, buyers have to determinehow best to use them to audit savings. Raw data alone usually is not suffi-cient to show savings performance, particularly with global contracts.

Auditing Travel Savings

7


SAVINGS

Buyers agreed that it isa best practice to havean independent internalteam dedicated to proj-ect savings validationand approval. The ulti-mate authority often issomeone within the

finance division.• • • • • • • •

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 thecost center.”

Buyers must determine a point of comparison to use in audits. One buyerreported using scripted input at the point of sale, for bookings through eitherthe agency or the online booking tool, which compares the negotiated fare towhat the cost would have been without the contractual discounts. Airfaresavings are not inflated by using unrestricted airfares as a point of compari-son, the buyer said. When bookings are out of policy, travelers’ managers arealerted 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 againstthe forecast for savings throughout the year. The information is reportedmonthly to management and subsequently is reported up the chain.

In terms of frequency, quarterly reviews of data for savings were popularfor travel buyers. Some do so more often, however, particularly when moni-toring the progress of new or high-savings-yield projects. One buyer, in lieu ofexternal savings audits, said the policy was to review raw data weekly for aself-audit.

The scope and frequency of audits can change within the lifespan of majorprojects. 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 upquarterly in subsequent years to ensure the savings were still on track.

Internal happenings within a company also can change the frequency ofaudits. One buyer said her general policy was to audit savings annually.However, her company recently had completed a merger, and travel was partof the synergy savings that had to be reported to Wall Street quarterly.Therefore, for the three years following the merger, she also has to auditthose quarterly synergy savings.

Buyers agreed that it is a best practice to have an independent internalteam dedicated to project savings validation and approval. Various people ordepartments may bear the ultimate responsibility for signing off on travel sav-ings audits. That responsible party will depend on to whom the buyer mustreport. While more buyers are reporting into procurement, the ultimateauthority often is someone within the finance division.

One buyer said she must take every new project before the finance groupprior to the onset to get approval of the savings methodology. “We have basicrules, but anything that is gray, we take it to them, especially if the savingsare over $1 million,” she said. “They must sign off on it.”

That approval can come from different levels in the finance organization.Some buyers have to report to financial controllers, chief financial officers orchief procurement officers. Others simply have a designated group within thedepartment to whom they report.

Some buyers have more intricate layers to sign off on auditing. One buyerreported multiple layers of required audits and review, going through demand-side business handshakes, the travel controller and an internal control officerfor key projects. In many cases, these authorities do not micromanage everylevel of the audits. Rather, they sign off on the key metrics of the audits andonly need to approve first-time methodology.

Travel departments can be even more autonomous. A few buyers reportedno direct audit process for savings outside of their own department. Still,managers will review reports for accuracy, even if not dictating each metricof the audit. “More often than not,” one buyer said, “our auditing departmentis concentrating on actual operation rather than worrying about whether I’vedone my calculation correctly.”

8


SAVINGS

The rise of demandmanagement principleshas empowered buyerswith ways to alter inter-nal consumption pat-terns or steer travelers

toward cost-aversebehavior. “We can’t

control demand, but wecan offer up cost-sav-

ings opportunities,”said one.

• • • • • • • •

Because corporate travel buyers do not operate within a vacuum, a highportion of an organization’s travel spending is determined by factors outsideof the travel department’s control, be those internal demand trends or exter-nal market forces.

On the airline side, general industry fluctuations, capacity cuts, theentrance of low-cost carriers into a local market, newly introduced fees andother external forces can have a large impact on a company’s travel costs.Likewise, the hotel market can fluctuate against the buyers’ interest with highoccupancy or in their favor with sluggish market demand or new supply inject-ed into a city.

There is no consensus on methods a company should use to differentiatesavings achieved through their own efforts against favorable or unfavorableexternal and travel industry events that drive or hamper savings.

It’s a mixed bag for buyers: Some said they look at overall spending as onelump sum—regardless of whether cost fluctuations come from within or weremanipulated by a market larger than them—while others attempt to examineonly what they can achieve through contract negotiations and policy enforce-ment. “It’s anecdotal and finance people want hard numbers,” one buyer said.

While some companies neglect to differentiate savings or losses derivedfrom factors outside of the travel department’s control, others said the beancounters upstairs put full responsibility for travel spending on the shouldersof the travel department.

One buyer said, “We are expected to mitigate changes in the industry witheither additional discounts or reductions in travel. Cost avoidance is trackedbut is not truly considered savings.”

Furthermore, some companies prefer to set comparable year-over-yearbaselines, attempting to construct apples-to-apples comparisons that stripout savings or losses not generated from within the travel department.Others, meanwhile, don’t care where cost increases or decreases originate,just that they are recorded and accounted.

Though buyers are resigned to the fact that they manage travel—not con-trol it—the rise of demand management principles has empowered themwith ways to alter internal consumption patterns or steer travelers towardcost-averse behavior. “We can’t control demand, but we can offer up cost-savings opportunities,” said one buyer. Though such practices offer furthercontrol, they come at the expense of elusive measurement opportunities.

Meanwhile, buyers also diverge as to how they differentiate hard-dollarsavings with a measurable impact on the balance sheet and soft-dollar sav-ings that drive cost avoidance or bestow difficult-to-monetize benefits upontravelers.

As airlines continually add fees for previously inclusive services as checkedbaggage or seat assignments—benefits once characterized as soft-dollar—now can have some measurable hard-dollar figures attached. For example, aselite holders of airline loyalty programs are shielded from some ancillarycharges, the savings generated from such programs can be determined witha bit more ease.

For others, it depends on the soft-dollar benefit in question and if there isa 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-

Factoring In Influences

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SAVINGS

“If high-speed Internetaccess is a cost ordi-narily passed to the

traveler but our negotia-tions include this access

in the rate, applicablecost avoidance can be

claimed.”• • • • • • • •

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 therate, applicable cost avoidance can be claimed.”

While some have determined ways to record such soft dollars on balancesheets, many buyers—at the behest of the finance department—only reportto 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 savingsnumber on the balance sheet.

As one buyer said, “Hard savings are reported as negotiated savings andsoft savings are reported under categories known as cost avoidance, such asnonrefundable exchanges and waivers and favors.”

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-gard or minimize those efforts in favor of what they would consider true costsavings. “Even though there are clear values added to the businesses if ourrates are better than market rates,” one buyer said, “it remains a challengingtask to get the savings recognized within the company.”

10


SAVINGS

“Everything has to bedocumented. We havea global procurement

desktop and we actuallyrecord everything intothis desktop. Our man-

agement religiouslylooks at this, as do our

stakeholders.”• • • • • • • •

While the level of detail required for reporting savings varies by company,Corporate Travel 100 participants in this benchmarking initiative generallywere divided between those who break down reporting by region or businessunits and those who calculate savings based on citypairs.

One participant’s company, which uses both measures, “requires projectsto be reported by business sector, by region. When calculating savings basedon citypair, we generally apply the 80/20 rule, where only the top 80 percentvolume pairs will be analyzed.”

Another respondent said, “We do it by business unit, by country, by regionand globally.”

However, for some, like pharmaceutical companies, reporting needs to beeven more detailed. One such Corporate Travel 100 manager said, “Becausewe make pharmaceuticals, we have to have so much documentation aboutevery single thing we do. We have an actual savings handbook of what wecan do, what we can’t do, how to measure things and how not to measurethings. It’s not perfect, but it does hit 90 percent of what we actually do. Thesavings handbook was probably written a lot more for direct materials than itwas for indirect, which travel falls under, but we still have to adhere to thosesame rules.”

That travel manager added, “Everything has to be documented. We have aglobal procurement desktop and we actually record everything into this desk-top. Our management religiously looks at this, as do our stakeholders.”

Other companies use the concept of pipelines to break savings initiativesdown step by step. One Corporate Travel 100 buyer’s company has fourpipelines to follow the savings initiative through its lifecycle. When someonegets an idea that could lead to savings, it is put into the “discovery” catego-ry. The “identify” category is used to identify the necessary actions needed inorder to realize the savings. An initiative is classified as “under development”when the company is on the way to realizing savings. The final pipeline cate-gory is “achieve.”

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 alongwith different stage reviews to management. “It chronicles exactly whatwe’ve done for this particular event so that when we move on to source someother commodity, somebody else can come along and actually know what wasdone the very last time,” the buyer said.

Some buyers said that a major focus in their company was to work withsuppliers 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 workingwith the supplier and really honing down the process. We’ve spent a lot oftime 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

Defining The Details

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SAVINGS

“For example, if one ofmy employees didn’tfollow policy, I’ll see it,my boss will see it and

his boss will see it.We’re actually namingnames and we’re actu-

ally showing in thisreport what they bought

and what they couldhave bought.”

• • • • • • • •

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 whatthey’re going to do,” one buyer said.

Some buyers said that they provide reporting tools and metrics to travelersand management, or that they have travel agents call travelers to show themthe savings opportunities that are available when they use in-policy traveloptions.

“We issue a report every month that is a scorecard that has six levels—forthe 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 whatthey 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 alot more valuable by the way we’re able to document everything. People don’tlike their names on lists.”

2008

100CorporateCorporateTravelB E N C H M A R K I N G S U M M I T

B T N o n l i n e . c o m

Defining Travel Management Savings And ValueSeptember 16, 2008

770 Broadway • New York, NY 10003 • BTNonline.com

© 2008, Nielsen Business Media

Welcome and thank you for participating inthis effort to define savings to accurately reflectthe value of business travel management.

During BTN ’s Corporate Travel 100 Benchmarking Summit sessionin Washington, D.C., in May, John Guarneri of Philips introduced thetopic of defining cost savings and travel management value. Severalpeople in the group quickly agreed that this would be a worthy topicfor a longer conversation. John not only raised the issue, but alsodevised the questionnaire most of you filled out, which we will use asthe framework of our discussions today.

We are able to gather here today thanks to the Tudor Hotel NewYork and TPG Hospitality, as well as additional support from BCDTravel and Delta Air Lines.

Attached are the responses to the questionnaire BTN received intime for this preliminary report from 11 of the 21 companies that con-firmed their attendance today. Several more have since contributeddata, and BTN will continue to collect data from others for a final reportto share with you and publish as a white paper for the industry soon.

Agenda

11:00 a.m.: Introduction: BTN editor-in-chief David Meyer • Welcome, introduction of sponsors• Presentation of exclusive original survey data • Opening remarks from John Guarneri,

Philips Vice President, Global CommodityManager, Travel

11:30 Question 1: How does your organization define travel related savings?

12:30 p.m. Lunch

1:30 Question 2: How does your organization audit such savings?

2:00 Question 3: How do you differentiate savings from external events?

2:30 Question 4: What level of detail is required for savings reporting purposes?

3:00 Coming to Consensus: Converse in small groups

3:30 Coming to Consensus: General sharing and wrap-up

travel

BTN’s Corporate Travel 100 Benchmarking Summit2

Ia. How does your organization define travel relatedsavings for airline, car rental, hotel, meetings, other?

1. Cost avoidance, incremental savings, contractualsavings, etc.

2. Savings are based on year-over-year reduction intotal spend. That could come from reduction in thecost per transaction (e.g. increased discounts on air-fares or reduced hotel rates) and/or reduced demand(e.g. reduction in the number of tickets purchased orroom nights purchased).

3. We base all methodology on our ProcurementSavings Handbook and the “Gold Standard:” GlobalProcurement savings are measured and defined as anaction taken by Global Procurement that results in areduction against one of the following baselines: 1.Previous price paid 2. Internal proxy or relevant exter-nal pricing* (for goods or services not currently pur-chased) 3. Budget Note: If #1 above does not exist,go to #2, then #3 * For service based contracts,where no previous unit price exists, use lowest com-petitive legitimate bid or best legitimate proposal asthe relevant comparable pricing baseline.

However, Finance made some allowance withregard to airline, card and meetings:

Airline: Incremental Discount (as we cannot get to apast price paid without blending averages)

Hotel: Past Price Paid (Rate this Year vs. Last Year)– we have one guarantee contract and if we manageto negotiate away the increase we can take the valueof what we negotiated away against what we wouldhave paid.

Car Rental: Past Price Paid (Rate this Year vs. LastYear or term, we would also measure mitigated sur-charges, fees or extras as savings)

Meetings: Budget vs. Actual Card: Hard DollarSavings in Sign-on and Rebate when received (soevery year recognized)

4. Cost Saving: Straight reduction from previouslysourced or new sourcing area based on relation tomarket

Cost Avoidance: Avoidance of previously or tradi-tionally based costs either through negotiation orprocess/implementation improvement

One-Time Saving: Savings that may be given as anincentive or is based on a one-time need or limitedsupply, cost savings not realized on an annual basis

5. Savings include both hard-savings (direct impactto P&L) and value-added savings (indirect impact toP&L, cost avoidance, savings on capex / cashflow)Three major categories are used:

Contract Based savings – hard-savings (EBIT 1 –supply based price negotiation)

Project Based savings – hard-savings (EBIT 2 –Supply based and productivity improvements; EBIT

One Off improvements) 3. Project Based savings –indirect/soft savings (value-added / cash-flowimprovement)

6. Incremental - year over year.

7. Savings that are attributed to the efforts of ourdedicated team and result in lowering the net costs oftravel when compared to having no program or effortsin place. Our costs vs the walk-up costs

8. Year-over-year cost comparison - from the unitlevel rolled up to total spend per segment; all absentof market conditions

9. We calculate savings between preferred airlines,and hotels on the same route/destination. Also non-preferred to preferred rates. Use of nonrefundabletickets that were cancelled. Value adds included withrates e.g. breakfast and or internet access. We workwith hotels when rates are booked over our negotiat-ed rate and measure how often the rate is reduced.We also look at total trip cost savings when compar-ing flying vs. taking the train and finally with meetingsand events we measure what the global relationshipdelivers to our event planners vs. the first quote

10. We define them as incremental contracted sav-ings. Savings are defined as being able to lower ourcosts year over year. We define contracted savings asimprovement over current agreements. Actual savingsare only reported when incremental spend is truly low-ered (i.e.: true savings)

Corporate Travel 100 Benchmarking SummitDefining travel management savings and value

September 16, 2008

Attendee questionnaire responses


11. Airline: negotiated savings only: comparing farebefore the discount against fare paid.

Meetings: benchmark corporate hotel rate againstnegotiated rate paid

Hotels: contracted rate against first rate offered;negotiated amenities (ie, free breakfast, internet)

Ib. How does your organization recognize travel relat-ed savings for each of the abovementioned areas?(methodology /formulas)

1. identification of a spend baseline -> sourcablespend baseline -> target sourcable baseline/costavoidance, incremental savings, increased discountlevels

2. See above.

3. Air: Incremental discount = (old discount vs. newdiscount) * actual flight segment flown

Hotel: Past price paid (rate this year vs. last year) Car Rental: Past price paid (rate this year vs. last

year or term, we would also measure mitigated sur-charges, fees or extras as savings)

Meetings: Budget vs. actual – so if meeting budgetwas 1 million and the meeting was negotiated at$500k, then they would take the $500k in savings

Card: Hard dollar savings in sign-on and rebatewhen received (so every year recognized

4. “Go to Market” event, and subsequent negotia-tion. Expansion of current or existing scope and rene-gotiation. Reduction of cost for non-related but similarscope of business. Supplier “give back” or incentive.Negotiation with existing supplier. Contract commit-ment with un-contracted supplier. Detailed documen-tation required of current costs vs. new costs requiredfor validation of savings.

5. In general: Contract Based savings = (old price – new price)*

new volume, with rebates/commissions incorporateinto the prices We also tried to calculate savingsbased on comparison of new market price vs. newcompany price. However, such market benchmarkefforts are not recognized by the company in 2008 or2009.

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) xactual year-to-date volume • It may also require man-agement’s approvals for special cases (e.g. fee col-

lection from audits, settlement of contract breach,etc.)

Project Based savings – value-added / capex sav-ings • Value-added: generally, the same calculationmethodology (old cost – new cost) apply. E.g., Travelban for a certain period = average price per city pair *volume reduced for a certain period. • This categorymay require pre-approval from the managementbefore reporting. • Since there is not a 100% correla-tion between the savings and Travel’s contribution,savings in this category may not be treated at “hard-savings”.

6. Airline discount is 20% and is reduced to 15% -savings is 5% X est. annual volume. Car rental avgtotal rate paid is $50 reduced to $40 savings is $10 Xest. annual volume Hotel avg room rate $120 reducedto $110 savings is $10 X est. annual volumeMeetings – very difficult to determine –if however thereare like meeting any reduction would be.

7. Airline - Savings % is gross cost of fare subtract-ing actual cost after contract applied. Divide diff bygross cost and % result is overall % of savings. CarRental not measured. Hotel is RAC rate less our rate -and difference is divided by RAC to result in % sav-ings.

8. In addition to the answer in question 1, we calcu-late savings as described above, notate ‘cost avoid-ance’ based on market conditions, and add the twotogether to identify ‘total benefit’.

9. It is a fairly manual process as we want the datato be as accurate as possible as well as the fact thatwe are measuring multiple areas, e.g. the value ofInternet access negotiated in the room rate or break-fast. We do use the reason code reports from theagency to assist specifically with air and also manuallycalculate savings between carriers and usage. wealso look at the impact of behaviour changes and forexample staying in the lowest priced preferred hotel ina city and what that would deliver


IIa. How does your organization audit such savings?(frequency of reporting / data of substantiation)

1. Monthly/quarterly project upload and review by adedicated global team; savings scope and potentialindependently evaluated according to established pro-cedure and benchmark

2. We have regular meetings with the finance group,which validates the savings methodologies.

3. Agency consulting group measures air, car andhotel and reports it to us. We have four travel agen-cies feeding data to one agency for data consolida-tion. We take that data and translate it to a procure-ment dashboard tool. We estimate savings for themonth, quarter and year and true up as we go.

Air is very good – car is not bad but hotel is under-stated because hotels are not often booked throughthe agency. We use booked as opposed to card dataas we need detail. We are ok with the margin of error.We have no way to get expense reporting data at themoment – plans for an enterprise system are under-way. Air, card and agency fees are auditable. Onlinebooking segments are auditable. Most other thingsare not. Our meeting agencies report savings to us.

4. Frequency – quarterly. Reporting from companyrecords and/or supplier using approved methodology(see 1b. above)

5. Multiple layers of reviews/audits exist. All projectsare reviewed /approved by:

Demand side business handshakes (business own-ers who benefits from the travel projects), and

Travel controller Savings must be in compliance withpre-defined definitions. Data substantiation (invoices /source of information) have to be attached/specified inthe project tracking tool.

Key projects (top 80% in amount) also have to bereviewed / approved by:

Demand side financial handshakes (finance personfrom businesses which benefit from the travel proj-ects), and

Internal Control Officer (compliance officer on behalfof management team)

6. Each buyer is responsible to ensure that savingsare being realized. Spot audits are performed through-out the year.

7. Self-audits are done weekly by review of rawdata. No external savings audits are performed.

8. Quarterly reports that roll up for the fiscal year.

9. We do monthly reporting to the business andhave our own internal analyst who verifies the figurestogether with the analysts at the agency

10. We engage our agency to provide our savingsreports and a third-party consulting company to sup-port our global airline RFP and quarterly audits. Wereport on cost avoidance on how we manage to theprogram. On a quarterly basis for hotel and air we lookat our purchased price paid as compared to contractrates

11. No audit performed

IIb. What are the key controls in your saving report-ing process, to ensure savings are accurate?

1. Independent/internal dedicated team responsiblefor project savings validation and approval, not sourcing

2. We received agency data to determine the trans-actions, average ticket price and hotel rate (amongother things) and also get the bottom line GL data todetermine total T&E spend. The latter is the best indi-cator of savings.

3. Finance does spot audits of our initiatives.Procurement has fairly high standards. We arerequired to report this information monthly to our man-agement, who reports it up the chain. We are meas-ured in our scorecard by how well we forecast oursavings for the year. Coming in over forecast is notvalued. For the first time we are beginning to reportout a variety of metrics with standards we have set inplace globally. We are not near where we need to beyet but it is a start.

4. See 2a above. Validate calculations and examinesupporting documentation.

5. See answers in 2a for the layers of controls inplace. Three critical points of controls are:

Travel controllers – as gatekeeper for all travel savingprojects

Demand Side / business handshake – as approverfor project / calculation approach / forecasted savings

Internal Control Officer – as ultimate gatekeeper forkey projects.

6. They are linked, in our on line contract manage-


ment system, to the agreement

7. Scripting, and report review same week to correcttypos for any manually entered items. Working towardrobotics to gather and document information withoutmanual additions

8. Direct matching (i.e. city pair to city pair for air)where possible; minimize extrapolation

9. It is based on booked data and comparisons areconducted against the corporate card data, compar-ing what was booked to what was actually paid for.

10. n/a

11. Agent and user scripted input at initial point ofsale whether reservation is made direct with theagency or through our online booking tool, reportedthrough the agency back office. Comparison ismade between what travel would have paid withoutcontractual discounts to the negotiated fare paid toreport true savings – not inflated by comparing tounrestricted 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 inyour organization before it becomes official?

1. Varies on level and scope; includes: categorymgr, 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 timemethodology we get the approval.

4. Designated financial officer. Chief ProcurementOfficer presents the savings in summary form to oper-ating companies.

5. All projects are required to be approved by: •Project owner • Supply Market Manager • DemandSide: business handshake • Travel Controller Keyprojects also require the approval from: • DemandSide: financial handshake • Internal Controller Officer

6. Executive Director

7. No one as savings are not ‘accountable’ to thecorporation, however managers review reports foraccuracy before internal savings are reported up.

8. The head of purchasing

9. Travel Services

10. n/a

11. Worldwide Procurement. They have responsibili-ty for reporting savings up through the organization


IIIa. How did you differentiate savings due to theefforts by your organization, vs. favorable or unfavor-able external and travel industry factors that lead orhamper such savings? (e.g. how to differentiate reduc-tion of airfare due to negotiation efforts from theTravel department, or due to a new LLC entering themarket and driving down fares.)

1. Set comparable (equalized) baselines for apples-to-apples comparisons

2. We don’t. We are expected to mitigate changesin the industry with either additional discounts orreduction in travel. Cost avoidance is tracked but isnot truly considered a savings.

3. For air it is fairly simple – we use incremental dis-counts YOY and not blended averages. So we cantell right off what our contribution is. We track againstforecasts but a good deal of what we log is costavoidance.

4. Currently no differentiation, and probably minimalexposure for our company since unit travel costs arenot going down and our key markets experience limit-ed impact from LCCs. However, if there is an agree-ment negotiated with a previously non-preferred carri-er, for instance, the differential of new fare and previ-ous fare would be captured as cost savings (see 1aabove). Same would apply to all travel categories.

Another area is demand management, which wouldinclude consumption (less or more travel) and changeof behavior (e.g., air class of service, advance pur-chase, changing from deluxe to moderate hotels).Such calculations are on our company’s radar once aconsistent and enforceable travel policy is in placeand move to more to a consolidated TMC platform –currently, our company does not have reliable data tocalculate these savings and/or cost avoidance oppor-tunities.

5. Our CTA (cContract based) savings are all inclu-sive. Therefore, external factors are lump-summedwith internal efforts for saving calculations.

For PTA (project based) savings, if there is no direct/ 100% correlation between Travel’s effort and ultimatesavings (i.e. other external factors may also con-tributed to the savings), we may be required by themanagement to report under “value-added” section

6. They are not differentiated any reduction is savings

7. Every record has a UDID for whether a savings iscontracted or no savings exists. Savings due to con-tracts is measured against those eligible for savings.Blended discount is all savings against all records,where ‘actual’ discount is exclusive to contracted sup-pliers to show value of contracts.

8. No differentiation at this time

9. We compare old airline/hotel rates to new rateswhen RFPs have been conducted and based on pre-vious year data will calculate the savings figure if travelpatterns remain the same and if we have been able tonegotiate better rates. We also speak with our internalanalysts for air and hotel and get their sense on wherethe industry is going by region and benchmark ourrates against their predictions.

10. We don’t do this

11. Our policy is lowest fare of the day within ourtravel policy window. We validate our successthrough various sources (ie: agency reporting, thirdparty audits, industry experts/benchmarking). It’sincumbent upon the travel department to select theright negotiating environment to conduct RFPs orrevisit existing contractual terms.

IIIb. How do you differentiate projects with hard sav-ings (savings that have direct impact to your P&L), vs.soft savings (savings that may be cost avoidance, value-added, which do not bring direct P&L improvement),from scope and reporting perspective?

1. All savings types (and potentials) are validated aspart of financial validation process for all projects

2. Hard savings is what is reported.

3. The chart below shows how we define Savingsand Benefit. We enter all things in our ProcurementDesktop however only hard dollar savings are truly val-ued. We need to prove the benefit and when we doour businesses buy into our savings (and remove fromtheir budget). The traditional savings measure that per-mits these exclusions will be referred to as“Procurement Benefit”. The table below illustrates whatis included in Procurement Savings vs. ProcurementBenefit.


4. Labeled and validated in accordance with defini-tions in 1a above.

5. See answers for Question #1. We are reporting /tracking value-added projects in a separate savingcategory. Theoretically, separate saving targets shouldbe set for hard savings and soft savings, respectively.

6. Soft dollar savings are documented but ARE NOTconsidered real savings

7. Hard Savings are reported as ‘negotiated savings’where soft savings are reported under categoriesknown as ‘cost avoidance’ such as ‘nonrefundableexchanges’ and ‘waivers and favors’

8. Again, we look at actual year over year costs forhard savings, and notate cost avoidance to identifytotal benefit of the travel management program

9. We separate out cost avoidance versus hard sav-ings with year-over-year deal improvements

10. We haven’t been able to systematically captureand report on this

11. We differentiate soft savings as cost avoidance(defined as management of the program).

III c. Do value-added projects (soft savings) counttoward savings in your organization? If not, how doesyour 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 isnot valued. We argue that we bring value in costavoiding almost $20M a year but we cannot recognizethis as savings automatically. We are logging it in ourprocurement desktop and trying to educate not onlyour management but our stakeholders that this is thetrue value we bring along with our market knowledgebut more work must be done.

3. If value-adds can be quantified and validated, thevalue can be counted as cost avoidance. For exam-ple, for hotels, if high-speed Internet access is a costordinarily passed to the traveler but our negotiationsinclude this access in the rate, applicable cost avoid-ance can be claimed.

4. Value-added projects may or may not counttowards savings. Pre-approvals are needed for thesavings to be recognized. E.g., benchmark results(compare our contract rates with market rates) are notrecognized for 2008 and 2009.

Travel is a matured business. Now that we areexperiencing increasing prices year-over-year andnegative savings from contract negotiations (year 2price > year 1 price), value-added savings are theonly area where large amount of potential savingscould be achieved. Even though there are clear valuesadded to the businesses if our rates are better thanmarket rates, it remains a challenging task to get thesavings recognized within the company.

5. Travel is treated as any other commodity. Realsavings. Programs that make sense and meet theneeds of the travelers. i.e.: balancing new airlinerequirements – United’s “stay over” policy that waslater rescinded.

6. They count toward internal (traveldepartment/team productivity metrics) which arereported up.

7. We don’t report on this at this time

8. Where there is a demonstrated cost for valueadded items (such as parking, internet, breakfast),when we negotiate that in we count it as negotiatedsavings.

Capital Capital Expense ExpenseReduction Avoidance Reduction Avoidance

Procurement Savings 4 4

Procurement Benefit 4 4 4 4


IV. What level of detail is required in your organiza-tion (e.g regional/country/business unit) for savingreporting purpose? (With hundreds of city or city pairsthat might be in scope, how did you efficiently calculatetravel related savings without missing or generalizingthe saving factors that might be regional/country-specif-ic/or business specific?)

1. All: Region/country/applicable BLs or BUs/etc.

2. Philips requires projects to be reported by busi-ness sector, by region. When calculating savingsbased on city pair, we generally apply the “80-20rule”, where only top 80% volume city pairs will beanalyzed. In other cases (e.g. contract negation sav-ings), we may also allocate saving numbers based onhistorical spending allocations (by region, by sector, orby country).

3. We look at each individual city pair (to the pointthat it makes sense) – domestically the top 75 – inter-nationally the top 25. Beyond that, savings are basedon weighted averages.

4. Summary level detail is reported. Additional isavailable upon request by the business unit.

5. We start at the operating company level (for someof our larger operating companies we go down to thedivision level), and roll up to the enterprise level

6. We do by business unit, by country, by regionand global

V. With hundreds of city or city pairs that might be inscope, how did you efficiently calculate travel relatedsavings without missing or generalizing the saving fac-tors that might be regional/country-specific/or businessspecific?

1. Identify region specific considerations and scopefor 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, suchcalculations are extremely limited and inefficient at thistime due to the company’s multiple reporting systems,use of multiple agencies and booking tools. Suchreporting, where possible, is localized in nature.

4. While we make every effort to report savings,where possible, by country and business unit, suchcalculations are extremely limited and inefficient at thistime due to the company’s multiple reporting systems,use of multiple agencies and booking tools. Suchreporting, where possible, is localized in nature.

5. We generalize at the highest levels for summarypurposes. At the business unit level more detail is pro-vided which brings into play the business units travelpatterns including city pair shifts year to year as theyimpact Average ticket prices, mileage flown and costper mile.

6. We match city pairs wherever possible, andextrapolate the balance of what doesn’t match

7. We looked at the top 100 city pair information bycountry, which represented around 80 percent of totalspend by country.

8. We report on high-level savings and not on detail

9. Regional, country and business unit level isrequired on all transactions booked through our desig-nated agency. We provide executive summary infor-mation to the businesses on a quarterly basis relativeto overall spend and savings, as well as lost savingsopportunity. While we highlight spend in key marketson key carriers and at key hotel chains, we can reportdown to the individual traveler/transaction level whenrequired.

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