Reducing Electrovision’s Travel and Entertainment Costs Essay

Reducing Electrovisions Travel and Entertainment Costs Here is the relieve oneself-up you requested January 30 on Electrovisions pop off and pleasure be. Your suspicion was right. We ar stumble bying out-of-the-way(prenominal) too much on condescension lead. Our offhand policy has been anything goes, leaving us with no documentary throw over T&E write d takes. Although this inactive approach may squander been at a lower placestand qualified when Electrovisions lolly were steep, we washstand no longer spread the luxury of going premier(prenominal) class.The solutions to the problem calculate rather pass away. We strike to concord someone with centralized function for drop deadling and frolic comprises, a clear statement of policy, an effective control formation, and a melodic line-oriented conk out service that can optimize our pass away arrangements. We should in addition investigate alternatives to hold up, such as videoconferencing. Perhaps more than important, we need to change our attitude. Instead of viewing get off funds as a bottomless supply of money, all locomotioning employees need to act as though they were fall ining the bills themselves. Getting people to preserve is non going to be easy.In the racetrack of re anticipateing this issue, Ive found that our employees are exceedingly devoted to their first-class snuff it privileges. I think they would or so prefer a cut in pay to a loss in act respite. matchless thing is clear stack leave alone be very bitter if we arrive at a dickens-class schema in which top executives get special privileges time the rest of the employees make the sacrifices. Im agreeable to Mary Lehman and Connie McIlvain for their help in collecting and choose through five dollar bill stratums worth of get down declares. Their efforts were truly Herculean. Thanks for giving me the opportunity to kick the bucket on this assignment. Its been a real education. If you contract any questions round the declare, please give me a call.This report analyzes Electrovisions expedition and diversion (T&E) damages and presents recommendations for reducing those be. Travel and Entertainment Costs be Too High Travel and Entertainment is a large and growing expense family unit for Electrovision. The friendship spends over $16 million per year on business decease, and these be realise been change magnitude by 12 percentage annually. Company employees make or so 3,390 trips each year at an norm cost per trip of $4,720. Airfares are the biggest expense, followed by hotels, meals, and lease cars.The temper of Electrovisions business does require extensive run, notwithstanding the political partys costs appear to be excessive. Every year Electrovision employees spend more than in deuce ways as much on T&E as the average business tourer. Although the location of the gilds facilities may partly explain this discrepancy, the primary(prenomi nal) reason for Electrovisions high costs is the self-coloreds philosophy and managerial style. Electrovisions tradition and its hands-off style almost invite employees to go first class and pay relatively pocket-size attention to travel costs. Cuts Are EssentialAlthough Electrovision has traditionally been casual about travel and pleasure expenses, focus now recognizes the need to dispatch more control over this element of costs. The company is currently enter a period of declining profits, prompting oversight to side for every opportunity to overturn spending. At the similar time, come up airfares and hotel rates are making travel and pleasure expenses more important to the bottom line.Electrovision understructure Save $6 Million per YearFortunately, Electrovision has a number of excellent opportunities for reducing its travel and entertainment costs. Savings of up to $6 million should be achievable, judging by the experience of new(prenominal) companies. American Express suggests that a sensible travel- precaution program can save companies as much as 35 percent a year (Gilligan 39-40). inclined that we grease ones palms many more first-class tickets than the average company, we should be able to achieve unconstipated greater savings. The first priority should be to hire a theatre conductor of travel and entertainment to assume boilers suit responsibility for T&E spending.This individual should establish a written travel and entertainment policy and create a compute and a cost-control system. The director should withal retain a nationwide travel situation to handle our reservations and should lead an investigation into electronic alternatives to travel. At the same time, Electrovision should make employees aware of the need for moderation in travel and entertainment spending. People should be promote to forgo any unnecessary travel and to economize on airline tickets, hotels, meals, letting cars, and new(prenominal) expenses. In ad dition to economizing on an individual basis, Electrovision should run across for ways to reduce costs by negotiating discriminatory rates with travel providers. Once retained, a travel agency should be able to accomplish this.Finally, we should flavour into the alternatives to travel. Although we may have to invest money in videoconferencing systems or other equipment, we may be able to recover these costs through decreased travel expenses. I recommend that the new travel director undertake this investigation to make sure it is healthful integrated with the rest of the travel program. These changes, although necessary, are likely to hurt morale, at least in the picayune term. Management will need to make a determined effort to explain the rationale for trim back spending. By exercising moderation in their own travel arrangements, Electrovision executives can set a not bad(predicate) example and help other employees accept the changes. On the plus side, cutting back on trave l with videoconferencing or other alternatives will reduce the travel burden on many employees and help them end their business and personal lives much better.Electrovision has always encouraged a significant amount of business travel, believe that it is an effective way of operating. To compensate employees for the inconvenience and variant of obsess trips, management has authorized generous travel and entertainment (T&E) allowances. This philosophy has been good for morale, but the company has paid a damage. subsist year Electrovision exhausted $16 million on T&E$7 million more than it spent on research and development. This year the cost of travel and entertainment will have a bigger move on profits, owing to changes in airfares and hotel rates. The timing of these changes is ill because the company anticipates that profits will be relatively weak for a variety of other reasons. In light of these profit pressures, Dennis McWilliams, Vice President of Operations, has asked the enumerateing system plane section to take a closer watch at the T&E reckon.Purpose, Scope, and LimitationsThe purpose of this report is to analyze the T&E calculate, evaluate the encounter of recent changes in airfares and hotel costs, and suggest ways to abridge managements control over T&E expenses. Although the report outlines a number of locomote that could reduce Electrovisions expenses, the precise fiscal cushion of these measures is difficult to project. The fancys presented in the report provide a best guess view of what Electrovision can extend to save. Until the company actually implements these steps, however, we wont contend exactly how much the travel and entertainment cipher can be reduced.Sources and MethodsIn preparing this report, the accounting department analyzed internal expense reports for the ancient five age to determine how much Electrovision spends on travel and entertainment. These predicts were then compared with average statistics co mpiled by Dow Jones (publisher of The Wall pathway Journal) and presented as the Dow Jones Travel Index. We also analyzed trends and suggestions publish in a variety of business diary articles to see how other companies are coping with the high cost of business travel.Report OrganizationThis report reviews the size and war paint of Electrovisions travel and entertainment expenses, analyzes trends in travel costs, and recommends steps for reducing the T&E budget.Although many companies view travel and entertainment as an incidental cost of doing business, the dollars add up. At Electrovision the bill for airfares, hotels, rental cars, meals, and entertainment replete(p)ed $16 million last year. Our T&E budget has increased by 12 percent per year for the past five years. Compared with the average U.S. Businesss travel expenditures, Electrovisions expenditures are high, largely because of managements generous policy on travel benefits. $16 Million per Year Spent on Travel and Ente rtainmentElectrovisions annual budget for travel and entertainment is only 8 percent of gross revenue. Because this is a relatively small expense category compared with such things as salaries and commissions, it is tempting to dismiss T&E costs as insignificant. However, T&E is Electrovisions third-largest controllable expense, directly behind salaries and knowledge systems. Last year Electrovision military group make about 3,390 trips at an average cost per trip of $4,720.The distinctive trip involved a round-trip flight of 3,000 miles, meals and hotel accommodations for ii or deuce-ace solar days, and a rental car. roughly 80 percent of the trips were made by 20 percent of the stafftop management and sales personnel traveled most, averaging 18 trips per year. bode 1 illustrates how the travel and entertainment budget is spent. The largest categories are airfares and lodging, which in concert account for $7 out of every $10 that employees spend on travel and entertainment. This spending sectionalisation has been relatively even for the past five years and is consistent with the distribution of expenses experienced by other companies.Figure 1 Airfares and Lodging Account for oer Two-Thirds of Electrovisions Travel and Entertainment BudgetAlthough the composition of the T&E budget has been consistent, its size has not. As mentioned earlier, these expenditures have increased by about 12 percent per year for the past five years, roughly twice the rate of the companys produce in sales (see Figure 2). This rate of branch makes T&E Electrovisions fastest-growing expense item.Figure 2 Travel and Entertainment Expenses Exceed subject area Averages Electrovisions Travel Expenses Exceed National Averages practically of our travel budget is justified. Two major(ip) factors feed to Electrovisions high travel and entertainment budgetWith our geniusquarters on the West shore and our major customer on the East Coast, we naturally spend a lot on cross-countr y flights. A great deal of travel takes place amid our headquarters here on the West Coast and the manufacturing operations in Detroit, Boston, and Dallas. Corporate managers and division personnel make frequent trips to coordinate these disparate operations. However, even though a good portion of Electrovisions travel budget is justifiable, our travelers spend considerable more on travel and entertainment than the average business traveler (see Figure 3).Figure 3 Electrovision People Spend Over The Dow Jones Travel Index calculates the average cost per day of business travel in the United States, based on average airfare, hotel rates, and rental car rates. The average fluctuates weekly as travel companies change their rates, but it has been running about $1,000 per day for the last year or so. In contrast, Electrovisions average daily expense over the past year has been $2,250125 percent high than average. This figure is based on the average trip cost of $4,720 listed earlier and an average trip length of 2.1 days. spending Has Been EncouragedAlthough a variety of factors may summate to this differential, Electrovisions relatively high T&E costs are at least part attributable to the companys philosophy and management style. Because many employees do not enjoy business travel, management has tried to make the trips more sweet by authorizing first-class airfare, luxury hotel accommodations, and full-size rental cars. The sales staff is encouraged to entertain clients at top restaurants and to invite them to cultural and sporting events. The cost of these privileges is easy to overlook, given the weakness of Electrovisions system for property track of T&E expensesThe periodic financial records provided to management do not ask a separate category for travel and entertainment the information is buried under Cost of Goods sell and under Selling, General, and Administration Expenses. Each department head is given authority to approve any expense report, reg ardless of how large it may be. Receipts are not required for expenditures of less than $100. Individuals are allowed to make their own travel arrangements. No one is aerated with the responsibility for controlling the companys total spending on travel and entertainment.During the past three years, the companys healthy profits have resulted in relatively little pressure to button for tighter controls overall aspects of the business. However, as we all know, the situation is changing. Were projecting flat to declining profits for the next two years, a situation that has prompted all of us to search for ways to cut costs. At the same time, rising airfares and hotel rates have increased the impact of T&E expenses on the companys financial results.Lower Profits Underscore the Need for lurchThe next two years promise to be difficult for Electrovision. After some(prenominal) years of steady increases in spending, the Postal Service is tightening procural policies for automated mail-han dling equipment. Funding for the A-12 optical character contributor has been canceled. As a consequence, the marketing department expects sales to drop by 15 percent. Although Electrovision is negotiating several bright R&D contracts with nongovernmental clients, the marketing department does not foresee any major procurements for the next two to three years.At the same time, Electrovision is facing costs increases on several fronts. As weve known for several months, the new production facility now under construction in Salt Lake City, Utah, is behind memorandum and over budget. labor contracts in Boston and Dallas kick the bucket within the next six months, and plant managers in that respect anticipate that significant salary and benefits concessions may be necessary to avoid strikes. Moreover, marketing and advertising costs are expected to increase as we search to strengthen these activities to better cope with competitive pressures. Given the expected decline in revenues a nd increase in costs, the Executive committees prediction that profits will fall by 12 percent in the coming fiscal year does not seem overly pessimistic.Airfares and Hotel Rates Are go upBusiness travelers have bad accustomed to frequent fare wars and discounting in the travel industry in recent years. Excess capacity and aggressive price competition, particularly in the airline business, made travel a relative bargain. However, that situation has changed, as weaker competitors have been forced out and the remaining players have grown stronger and smarter. Airlines and hotels are better at managing inventory and keeping occupancy rates high, and high occupancy translates into higher prices because suppliers have les reason to compete on price. Last year saw some of the steepest rate hikes in years. Business airfares (tickets most likely to be purchased by business travelers) jumped over 40 percent in many markets. The trend is expected to continue, with rates increasing another 5 to 10 percent overall (Phillips 331 Travel Costs Under Pressure 30 Dahl B6). Given the fact that airfare and hotel costs account for 70 percent of Electrovisions T&E budget, the trend toward higher prices in these two categories will have serious consequences on the companys expenses unless management takes action to control these costs.By implementing a number of reforms, management can expect to reduce Electrovisions T&E budget by as much as 40 percent. This estimate is based on the general assessment made by American Express (Gilligan 130-140) and the fact that we have an opportunity to significantly reduce air travel costs by reducing or eliminating first-class travel. However, these measures are likely to be unpopular with employees. To gain acceptance for such changes, management will need to sell employees on the need for moderation in travel and entertainment allowances.Four Ways to hack ExpensesBy researching what other companies are doing to curb travel and entertainment expenses, the accounting department has identified four prominent opportunities that should enable Electrovision to save about $6 million annually in travel-related costs.