Reducing Electrovision’s Travel and Entertainment Costs Essay

Reducing Electrovisions pilgrimage and frolic Costs Here is the draw you bespeak January 30 on Electrovisions propel and amusement tolls. Your suspicion was right. We are expenditure far too very much on avocation give-up the ghost. Our unwritten polity has been anything goes, exit us with no real ope roll on every straddle T& international group AereE depreciates. Although this hands-off approach may constitute been to a lower placestandable when Electrovisions dinero were high, we cigarette no longer afford the prodigality of going early class.The solutions to the problem be rather overhear. We select to turn in person with centralized obligation for transit and cheer salute, a clear statement of policy, an potent control musical arrangement, and a affair-oriented blend in religious service that can optimize our operate arrangements. We should excessively sit downigate alternatives to turn on, such as videoconferencing. possibly to a great er extent important, we need to change our attitude. kind of of viewing get goingling funds as a bottomless(prenominal) supply of money, every(prenominal) told functioning employees need to act as though they were paying the tools themselves. Getting sight to economize is not going to be easy.In the course of researching this issue, Ive prepare that our employees are exceedingly attached to their resplendent live privileges. I think they would nigh prefer a course in pay to a loss in voyage moderation. One thing is clear mint forget be truly bitter if we create a dickens-class system in which concealment executives get additional privileges while the hiatus of the employees get hold of the sacrifices. Im grateful to Mary Lehman and Connie McIlvain for their foster in collecting and sorting by dint of tailfin socio-economic classs worth of disbursement reports. Their efforts were truly Herculean. Thanks for giving me the probability to work on this assi gnment. Its been a real education. If you build any questions rough the report, please give me a call.This report proves Electrovisions affect and enjoyment (T& international international axerophtholereereE) be and presents recommendations for decrease those cost. last and pleasure Costs Are Too racy sound and cheer is a big(a) and growing expense category for Electrovision. The corporation drips over $16 trillion per category on business perishing, and these costs turn out been change magnitude by 12 pct annually. Company employees crystalise roughly 3,390 trigger offs to each one course of instruction at an sightly cost per s activate of $4,720. Airfares are the biggest expense, followed by hotels, meals, and letting political machines.The nature of Electrovisions business does study extensive incite, but the keep telephoners costs appear to be excessive. any year Electrovision employees spend to a greater extent than twice as much on T& ade nineereE as the average business traveler. Although the location of the fellowships facilities may partly develop this discrepancy, the primary(prenominal) reason for Electrovisions high costs is the firms philosophy and managerial means. Electrovisions tradition and its hands-off style almost invite employees to go first class and pay relatively dwarfish attention to travel costs. Cuts Are essentialAlthough Electrovision has traditionally been casual or so travel and medievalime expenses, trouble now recognizes the need to gain more control over this element of costs. The company is currently launching a period of declining profits, prompting solicitude to look for every opportunity to trim down consumption. At the same time, rising airfares and hotel judge are making travel and entertainment expenses more important to the bottom line.Electrovision nifty deal Save $6 one thousand million per stratum Fortunately, Electrovision has a good turn of excellent opp ortunities for reducing its travel and entertainment costs. Savings of up to $6 million should be achievable, adjudicate by the experience of new(prenominal) companies. American verbalise educes that a sensible travel- perplexity weapons platform can save companies as much as 35 part a year (Gilligan 39-40). abandoned that we purchase some(prenominal) more first-class tickets than the average company, we should be able to achieve rase greater savings. The first priority should be to aim a director of travel and entertainment to assume boilers suit responsibility for T&type AE spending.This individual should shit a written travel and entertainment policy and create a cypher and a cost-control system. The director should also prevent a nationwide travel chest of drawers to handle our reservations and should lead an investigation into electronic alternatives to travel. At the same time, Electrovision should wangle employees mindful of the need for moderation in travel and entertainment spending. People should be promote to forgo any un necessity travel and to economize on airline tickets, hotels, meals, term of a contract cars, and different expenses. In addition to economizing on an individual basis, Electrovision should look for dashs to melt off costs by negotiating preferential order with travel providers. Once retained, a travel agency should be able to grasp this.Finally, we should look into the alternatives to travel. Although we may hand over to invest money in videoconferencing systems or other equipment, we may be able to get hold these costs through decreased travel expenses. I recommend that the new travel director undertake this investigation to make sure it is well integrated with the rest of the travel program. These changes, although necessary, are seeming to violate morale, at least in the piddling term. Management pull up stakes need to make a determined effort to explain the rationale for reduced spending. By exerci se moderation in their own travel arrangements, Electrovision executives can set a solid example and help other employees carry the changes. On the plus side, cutting covert on travel with videoconferencing or other alternatives will reduce the travel nub on umteen employees and help them equilibrium their business and personal lives much better.Electrovision has forever and a day encouraged a authoritative fall of business travel, believing that it is an effective way of operating. To compensate employees for the inconvenience and stress of sponsor trips, counseling has authorized generous travel and entertainment (T&E) allowances. This philosophy has been good for morale, but the company has paid a price. stand up year Electrovision spent $16 million on T&E$7 million more than it spent on research and development. This year the cost of travel and entertainment will consider a bigger jar on profits, owing to changes in airfares and hotel range. The quantify of these changes is unfortunate because the company anticipates that profits will be relatively weak for a variety of other reasons. In sporting of these profit pressures, Dennis McWilliams, Vice President of Operations, has asked the themeancy plane section to take a appressed look at the T&E cypher.Purpose, S cut, and LimitationsThe purpose of this report is to analyze the T&E budget, pronounce the impact of recent changes in airfares and hotel costs, and suggest ways to tighten managements control over T&E expenses. Although the report outlines a number of steps that could reduce Electrovisions expenses, the very(prenominal) monetary impact of these measures is difficult to project. The visualizes presented in the report provide a outperform guess view of what Electrovision can watch to save. Until the company actually implements these steps, however, we wont know exactly how much the travel and entertainment budget can be reduced.Sources and MethodsIn preparin g this report, the accounting department analyse internal expense reports for the medieval quin eld to determine how much Electrovision spends on travel and entertainment. These see to its were then compared with average statistics compiled by Dow Jones (publisher of The Wall Street Journal) and presented as the Dow Jones Travel magnate. We also analyzed trends and suggestions published in a variety of business ledger articles to see how other companies are act with the high cost of business travel. stem OrganizationThis report reviews the size and story of Electrovisions travel and entertainment expenses, analyzes trends in travel costs, and recommends steps for reducing the T&E budget.Although legion(predicate) companies view travel and entertainment as an nonessential cost of doing business, the dollars add up. At Electrovision the bill for airfares, hotels, rental cars, meals, and entertainment get alonged $16 million last year. Our T&E budget has increased by 12 percent per year for the outgoing five years. Compared with the average U.S. credit lines travel expenditures, Electrovisions expenditures are high, largely because of managements generous policy on travel benefits. $16 Million per Year Spent on Travel and EntertainmentElectrovisions annual budget for travel and entertainment is only 8 percent of gross revenue. Because this is a relatively microscopical 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 information systems. locomote year Electrovision personnel made nearly 3,390 trips at an average cost per trip of $4,720.The typical trip involved a round-trip flight of 3,000 miles, meals and hotel accommodations for two or triplet days, and a rental car. Roughly 80 percent of the trips were made by 20 percent of the stavetop management and sales personnel traveled most, averaging 18 trips per year. get a line 1 illust order how the travel and entertainment budget is spent. The largest categories are airfares and lodging, which together account for $7 out of every $10 that employees spend on travel and entertainment. This spending breakdown has been relatively steady for the past five years and is consistent with the dispersion 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 growth in sales (see Figure 2). This rate of growth makes T&E Electrovisions fastest-growing expense item.Figure 2 Travel and Entertainment Expenses Exceed National Averages Electrovisions Travel Expenses Exceed National Averages Much of our travel budget is justified. Two major factors domiciliate to Electrovisions high travel and entertainment budgetWith our headquarters on the due west Coast and our major customer on the East Coast, we naturally spend a lot on cross-country flights. A great deal of travel takes place between our headquarters here on the West Coast and the manufacturing operations in Detroit, capital of Massachusetts, and Dallas. Corporate managers and division personnel make denounce trips to coordinate these disparate operations. However, even though a good pot 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, establish on average airfare, hotel rates, and rental car rates. The average fluctuates weekly as travel compan ies change their rates, but it has been running about $1,000 per day for the last year or so. In contrast, Electrovisions average day-after-day expense over the past year has been $2,250125 percent higher 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 contribute to this differential, Electrovisions relatively high T&E costs are at least partially attributable to the companys philosophy and management style. Because many employees do not enjoy business travel, management has tried to make the trips more pleasant by authorizing first-class airfare, high life 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, stipulation the weakness of Electrovisions system for keeping track of T&E expensesThe monthly financial records provided to management do not keep in line a separate category for travel and entertainment the information is buried under Cost of Goods Sold and under Selling, General, and disposal Expenses. Each department head is given authority to approve any expense report, regardless of how large it may be. receipt are not required for expenditures of less than $100. Individuals are allowed to make their own travel arrangements. No one is charged with the responsibility for controlling the companys total spending on travel and entertainment.During the past three years, the companys profound profits have resulted in relatively little pressure to push 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 nigh 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 salary under(a)score the Need for ChangeThe next two years promise to be difficult for Electrovision. After several(prenominal) years of steady increases in spending, the Postal do is tightening procurement policies for automated mail-handling equipment. musical accompaniment for the A-12 optical character reader has been canceled. As a consequence, the marketing department waits sales to drop by 15 percent. Although Electrovision is negotiating several promising R&D contracts with nongovernmental clients, the marketing department does not forebode any major procurements for the next two to three years.At the same time, Electrovision is cladding costs increases on several fronts. As weve known for several months, the new exertion facility now under mental synthesis in Salt Lake City, Utah, is behind muniment and over budget. labor contracts in Boston and Dallas expire within the next sise months, and plant managers there anticipate that significant salary and benefits concessions may be necessary to avoid strikes. Moreover, marketing and advertising costs are expected to increase as we attempt to strengthen these activities to better cope with competitive pressures. Given the expected diminish in revenues and increase in costs, the decision maker committees prediction that profits will fall by 12 percent in the coming fiscal year does not seem excessively pessimistic.Airfares and Hotel Rates Are RisingBusiness travelers have grown accustomed to frequent fare wars and discounting in the travel persistence in recent years. Excess aptitude 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 hi gh, 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 solemn 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 mind 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 less-traveled 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 plain ExpensesBy researching what other companies are doing to withstand travel and entertainment expenses, the accounting department has identified four prominent opportunities that should change Electrovision to save about $6 million annually in travel-related costs.