Corporations focused a procurement lens on travel en masse beginning around the turn of the century. The new emphasis on spend management surfaced questions about the return on investment in trips, and with the 2007-2008 financial crisis, companies began demanding answers. Some industry organizations attempted to answer the demand with research, but it did not generate best practices. For every new finding from ongoing work in this domain, it seems, researchers suggest a new area for study.
Whether at the corporate, departmental or individual level, how does one know when travel spending is worth it?
Scott Gillespie of tClara has pondered the matter for years. On Thursday, he published a 48-page paper on a eureka moment.
“It’s no wonder that requests to travel have been decided by budget availability, old habits, politics, intuition or favoritism,” he wrote. “None of these make for a disciplined or equitable way to determine how best to use a travel budget. Old-school decision methods are no longer good enough. Travel budgets are under increasing pressure to be used wisely. The planet needs less travel, not more. Managers can do better. Low-value trips can and should be flagged before they are taken, leaving travel budgets to fund higher-value trips.”
Among Gillespie’s findings from a fall 2022 survey of 407 U.S.-based business travelers regarding their most recent business trip was that more than one in four such trips were low in value. He thinks he cracked the code on how to identify (with 75 percent accuracy) and curtail those, making emissions less of a waste and improving employee well-being.
Decision-makers, he argued, already possess the ability but largely miss the opportunity to determine ahead of time a vital component of a trip’s value. They simply need to ask themselves how much they would spend on it. To do so, they might consider trip purpose, type, duration and other attributes suggested in the paper.
“The problem is that it’s impractical to ask a traveler to put a dollar value on a business trip because most trips don’t have a clear financial impact,” according to tClara. “But every trip will have a cost at which it won’t be worth taking. This weighing of a trip’s cost against the trip’s fuzzy expected value is done every time someone requests a trip. It’s a judgment call that travelers and their managers are experienced at making. The solution to valuing a business trip is to ask the traveler or their manager to set a cost at which the trip can no longer be justified.”
“It’s a forcing question,” Gillespie said last week during a briefing on the paper. “It forces people to crystallize, in the moment, the effective marginal value of going on a trip.”
This estimate becomes an input for a framework that Gillespie called the Justifiable Cost Model.
The formula assumes that if a decision-maker can justify a trip that costs $15,000 over one that costs $3,000, the former has a higher value.
It combines the identified “maximum justifiable cost” with the value of the traveler’s time for the trip and the trip’s estimated cost. It applies a 50 percent markup to identify gross expected value. That’s based on data from the surveyed business travelers and senior leaders suggesting support for the notion that a trip’s value should exceed its cost by at least 50 percent. This produces a trip’s “net expected value” and “pre-trip ROI.”
Maximum justified cost ($3,000) + Traveler time ($1,000) + 50 percent markup ($2,000)
= Gross expected value ($6,000)
Gross expected value ($6,000) – Estimated trip cost ($1,500) – Traveler time ($1,000)
= Net expected value ($3,500)
Net expected value ($3,500) ÷ Estimated trip cost + Traveler time ($2,500)
= Pre-trip ROI (140 percent)
Gillespie sees travelers and bosses answering questions as a “screening mechanism” in a “pre-trip justification tool” — something he sells under the brand Trip Tester. He said it could be adopted in other environments, such as those run by online booking tech firms or travel management companies, to support demand management.
The paper also presents alternative methods for estimating the gross expected value of a trip.
“You don’t even need a tool,” said Gillespie. “Some people can do this math in their heads. It’s the kind of thing that needs to be implemented in most companies.”
Sponsored by Traxo, the paper has suggestions for assessing post-trip value, which Gillespie argues is essential for building confidence in pre-trip estimates and the resulting assessments.