BI Instead of Expense Controls?

Your organization has a travel and expense policy. It’s probably long and complicated, with lots of rules that your employees roll their eyes at, and your financial controllers probably struggle to implement it. Why? Because the role of finance includes controls, and because “control” is too often translated into “rules.”

A BI approach to expense controls

But rather than trying to control every situation (an attempt to list everything that an employee can’t expense, for example), a travel and expense policy should be a statement of general principles: “spend money as if it were your own”, “book your travel directly over the web if it’s >30% cheaper.” Given human nature, some will always ignore the principles — which is where business intelligence comes in.

Expect what you inspect

With BI, transparency replaces controls. Effective management reports can flag exceptional expenses and compare them against averages — showing, for example:

• A marketing director wants to buy an air ticket that costs double the company average for the route.
• An Eastern sales manager spends twice as much on hotels as his western counterpart.
• A certain department spent more this quarter on entertainment than they did in the whole of last year.
• France spends more 10% on travel than the UK, but generates 20% more sales per trip.

The benefits

Controlling all expenses is advance wastes time and money each time the expense is legitimate — i.e. in the vast majority of cases. And policies and rules can only limit costs — following the rules is no guarantee of lowest costs. For example, if an employee really wants to travel on his or her favorite airline, he or she could book later than strictly necessary, hoping that the lower-cost options at other airlines will no longer be available. In a rules-based system, this type of behavior is almost impossible to detect and prevent.

In theory, BI has the potential to allow finance to prevent abuses and optimize expenditure, while allowing managers and employees more flexibility, at a lower administration cost to the organization.

So why don’t organizations do this?

One reason for prior controls is the surge in compliance regulations. But I believe those regulations emphasize having effective systems in place rather than laying out in detail exactly how the controls should be carried out. And the same regulations also typically require greater transparency, which implies improved BI.

Of course, carrying out BI requires that the data is available in a suitable system. But increasingly, this is provided automatically as part of web-based expense systems. 

BI is almost always considered as an add-on to the “real” project, to be implemented months or years after control systems are operational, if ever. But why is this? There is a cost associated with BI, of course — but implementing BI can save of the costs associated with rules-based systems, by concentrating resources more effectively on abuses or areas where costs can be reduced.

So why isn’t BI considered as part of an optimal system at implementation, rather than something to potentially be added on at a later date?