"But we do not add margin on travel expenses"

was a systems integrator's argument during a negotiation where we were balking at paying another 20% expenses on top of their already high fees. He was incredulous we were nit-picking on that line item.  "But it is real money to my client" I had to respond. "Find us ways to cut that down to 5%. "

Consultant travel continues to be a major add-on to fees. Brian Sommer does a nice job analyzing travel spend at the major consulting firms, and he has a set of recommendations on managing their expenses.

Forget auditing after the fact. I tell my clients to control/cap them up front. I wrote about the issue last year and some recommendations here.

How bad is it? The consultant travel expenses are in many projects themselves many times the license cost of the software being implemented. Try finding ROI around that line item.

Comments

[Roman Rytov]

Vinnie, we discussed the point from a flyer's (consultant's) perspective here: http://roman-rytov.typepad.com/miles/2006/02/flaws_of_freque.html

what I see is though SAP has a relatively careful policy for its employees some of the customers put a cap on that (putting in place per-dime allowances) which makes SAP compensate from its margine a remarkable difference between what travel costs and the customers pay

[viinnie mirchandani]

Roman, from your or my selfish perspective I am sympathetic to flying business class on long flights, Friday off (neck I have a family also) etc. But from a client's efficincy of dollars spent it often does not make sense. The solution is not to discomfort employees but to find more local staff for more routine taks (fly in project managers/key staff if necessary, do more remote work - that would be best of both worlds (and those that fly can be allowed to fly business class, not be nitpciked on meas etc). Right now the industry has no incentive (or pressure to) so we zig zag our consultants as they become available not based on constraining the travel expense in the staff allocation process.

[SR]

Vinnie,

I don't think big 5 folks travel business...(atleast I don't, nor do my colleagues and I haven't seen my SE's travel business either)
The problem is that if you choose local consultants, this could vary as widely as finding a consultant in say Brooklyn for a project in South Jersey which then doesn't exactly become local....also these days all majors have hired so many that not putting your own employees on a project instead of finding local contractors is tantamount to being criminal...we have to place our own..we have to get our bootcamped skills up and running :) ...
what makes sense is acting smart - reducing travel, perdieming it, eliminating unnecessary travel, using remote tech more regularly..

tks

[viinnie mirchandani]

SR: as we know from supply chain optimization, working with constraints is never easy. It's about priorities and choices - and yes . But you cannot tell me you cannot find Java, testing, documentation and othet talent in most primary and secondary cities now. The margins are better if you use your own staff, rather than sub-contract.And some firms go to great lengths never to sub-contract for quality reasons. But I would like the client to be given the choice. If they do not mind paying for everyone to travel, fine. I think most would agree with my thinking. Travel expenses are the tip of the iceberg. Too much of team traveling causes Friday off, project morale, health issues. Critical resources may travel, more generally available talent should not is a nice compromise.

[Anil Kurnool]

Did anyone look into the actual class the consultant is flying?

Usually, the customer is charged for Business, but the consultant flies in no-frills airlines.

[Avneesh Balyan]

Traveling is the most wasted expense in current Bussiness environment. And to me problem is more than just waste in terms of money but creating class within jobs. I have seen, big time travelling has become a attraction for new entrant to high flying executives within a company (or new hire). New one for partying and seniors for accumulating miles, may be for family vacation. Sometimes you cant stop, but problem is, once started, you cant control. Instead for concentrating on silly software jobs, my exp says, people acts more like executive just because they travelled in Buss class. Its pity, but dont you think, you consultants are culprit at first place ;).

[Dennis Howlett]

And all of this before you get to the vexed question of expense padding. Government is catching up with that one in the US. I wonder how many private enterprises have solid expense monitoring in place?

Apologists will always play the quality card but if they don't have the talent locally available then why are they bidding in the first place?

Another angle. Is there anything wrong with using remote workers for those utility jobs without going to the risk of offshoring?

Where are the Sun, IBM, Microsoft, SAP and Oracle centres of excellence that could contribute to the country's economy by establishing in areas which have traditionally been deprived of access to technology excellence? Why does SV have to be the centre of the universe for utility work?

[vinnie mirchandani]

Avneesh, oh, sure there are some very spoilt frequent flyers. I do not want to deny people their comforts - travel takes people from families, is a hassle with current security, crowds etc. But as I commented to Roman above if a smaller team travels, you can take care of the individual traveller and not break the client. Fewer, more relevant, people traveling, Myself, for domestic travel I have disciplined myself to flying Southweat on 90% of flights. My "firsst class" seat is an aisle on left side of their plave. There is enough leg room and for my right hand to work the key board.

Anil, Dennis - not sure I would agree on expense padding being a huge problem. I would argue frequent flyers lose money on cash expenses. I seem to forget tips, coffee at airports, short taxi rides.

BTW -On internetional flights, I have worked a compromise with several clientts. I will buy an upgraddable fare, then use my miles and charge the client $ 500 for the miles. Usually that works out to $ 2 to 4,000 less than business class the airline would sell. Of course, the airlines make using awards dificult, so it only works 1/3 the times. comforts,

[Dennis Howlett]

There were several 'padding cases' last year I think involving Bearing Point.

[Mohan Babu]

The data quoted is that of a few American consulting companies and I wonder if the statistics would be any different if the survey were global. What about offshore outsourcing companies that routinely fly thousands (if not more) of consultants, programmers and analysts half-way across the globe!

[viinnie mirchandani]

Good point, Mohan - but most offshore firms I have helped my clients negotiate with include travel costs in on-site rates (other than for short assignments) - so clients do not have as much visibility to the expense. But the gap between offshore and on site rates has been growing steadily in some cases over $ 50 an hour - or 100K a year so expect more scrutiny on those expenses too. While a great assignment for many young staff of offshore firms, I also see a number of issues around home sickness, loneliness in offshore staff.

Having said that, many of the offshore firms in particular have negotiated pretty good rates for economy fares - you can fly all the way to Idnia from US often for less than flying to Europe or even cross country in US. And with many airliens offering non-stops (Delta is about to join American and Continental in non sotps from US) expect even more competition.

[Boondoggie]

There are two types of "padding" to deal with on a project. The first is the uplift the company puts on expenses to cover administrative costs. This is fairly common. When I worked at a small contractor we put a 10% uplift on our expenses because yes, the infrastructure to process expenses, ticket changes, and the 180-day pay cycle from the customer really did cost us money. Those bills went through two layers of "prime contractors", each putting their margin on top of our invoice. A big three letter consulting company was taking a 40% margin on the 10% we were charging to cover fees. If you want to drive down travel costs, this is where to look. Go to your vendors (especially the small ones) and tell them you'll turn around any expenses submitted in 10 days in exchange for direct submittal rather than through a prime invoice. Cut out the primes because they're not adding anything here. Many large companies think they're exercising "muscle" and conserving cash flow by stretching out their payment cycle to their small vendors. Hogwash -- you're paying a lot more for the privilege of 90-180 day payables.

The other "padding" is at the individual level, when a traveler doesn't have a receipt for a specific expense so something extra makes it in. Anybody who thinks you can make money traveling doesn't travel. A little extra here or there doesn't even come close to the giant expenses that are incurred because you travel but you'll never get through an expense report. I've had a post rolling around in my head about this subject that I'll put up in my blog in a few days.

[vinnie mirchandani]

agree, the amount of money I have lost over the years in tips, taxis, airport coffees...I try to put as much as possible on credit card, but I would say 5 to 10% ends up in cash

On the margin on expenses I must admit I have not seen too much of that. On the other hand I will tell clients to just pay expenses on per diem basis and not worry about receipts. So long as their overall exposure is limited...