November 15th, 2009

Before you do that BPO, Audit, Consulting or other services deal, check out these costs

Posted by Brian Sommer @ 8:25 pm

Categories: Contracting, ERP, GRC - Governance Risk Compliance, Implementing Technology, Notable Research, Outsourcing, PSA - Professional Services Automation, Professional Services, Selling Professional Services, Service Providers, Sourcing, The Application Software Buyer, expense management, expense reporting

Tags: Rental Car, Hotel, Audit, BPO, Consulting, Business Services, Business Process Outsourcing (BPO), CAD, It Operations, Software

Is your services partner wisely spending its/your money????

I’ve spent a lot of money on travel. Over one 10-year period, I went through $2.5 million just on airline travel alone. I think I understand travel well.

I always look through the annual Business Travel News top 100 travel spending report. Companies are ranked by the amount of air travel spend they incur annually in the U.S.

In reviewing the latest issue, I was pleased to see several systems integrators, software companies, hardware vendors and other technology related firms have instituted some great practices in recent years. I even compared this year’s report with data in a prior year (see graphic).

Where the Money Goes

Now, some firms are spending more on air travel and total T&E (travel and entertainment). Why? Well, last year’s fuel costs drove air fares up demonstrably and that got reflected in higher travel costs. Some firms grew organically and some took on substantial acquisitions (e.g., SAP buying Business Objects, HP buying EDS, etc.). Growth should trigger higher travel costs as more headcount usually translates to more travel cost.

But, buyers of services need to look a bit deeper and question potential service providers as to the measures they are taking to ensure that the money they spend on travel and T&E is worthwhile and cost-effective.

Here are some areas to probe:
- Are training trips booked with 21-day advance purchase fares?
- Do employees use the lesser of the integrator or the client’s negotiated rates with carriers, hotels, rental car companies, etc.?
- Do employees car pool/share rental cars on long-term out of town engagements?
- Do employees stay in apartments or extended stay facilities in lieu of hotels for long-term engagements?
- Do employees use 7-day advance (or longer) fares for internal meetings?
- Are internal meetings scheduled for days when employees would normally be in their home office location (e.g., Friday)?
- Does the integrator/software firm aggregate travel spend globally to maximize its pricing power?
- Do the integrators/software firms utilize closer-in personnel so as to avoid air travel altogether?
- What percentage of trips are booked for travel that will not be chargeable/billable? How can this number be reduced further?
- What class of travel is being booked for short-haul, long-haul and international travel?
- Are service workers allowed to choose the carrier? How can a client be assured that the lowest fares are being selected?
- Does the service firm discipline employees who violate travel policies? Does the client have to pay for these excesses?

Beyond airfare, the size of the T&E numbers is what really gets my attention. Admittedly, I’m surprised when my rental car bill or my hotel bill exceeds my airfare. It happens more frequently these days as rental car rates have shot up in many markets. You’ll really see it when you stay more than a day in a given market (I rarely get that luxury).

I’ve seen service people charge in some whoppers on their time reports. Usually, they get nailed for it. You know what I’m talking about. Staffers taking clients out for mega-expensive dinners and charging it in. Lazy staff who don’t book travel until the last second. Staffers who insist on staying in resort hotels, use valet parking, etc. I have a name for those folks: ex-employees.

I once had a boss who insisted on only staying in the absolute finest hotels and dining in restaurants that only the most well-heeled gourmet could afford. And, of course, he only flew first class.This person was an empirious cad without empathy. This ultimate narcissist was hell to work for and a major expense control problem for his clients.

I spend a lot of time in software and service negotiations outlining the rules of the road, so to speak, on how service providers will operate when engaged with my clients. Trust me, if you don’t have these conversations, you will lose a lot of money.

So, what are the most egregious T&E sins of service providers you’ve seen?