Friday, December 3, 2010

How to Measure Corporate Hotel Program Compliance (Hotel Compliance 3 of 5)

There are different ways to measure corporate hotel program compliance. The most common way is the direct compliance ratio, which is basically the percentage ratio of spend at preferred properties over total spend. In addition, there is a number of other measures that could be tracked in complement to the direct compliance ration, the most important of which are compliance measure by geography, business unit, and folio data review to detect non-compliance.

Direct Compliance Ratio

This is the most straight-forward method is to divide how much spend at preferred properties by total spend. For example, if you have about $10 million of spend, where $7 million occurred at preferred properties, this would yield a compliance ratio of 70%.

Most of my clients prefer that method as it is straight-forward, easy to calculate, and easy to explain to senior management.

Compliance measurement by geography

In many cases, global companies have travelers come from different facilities and client sites around the globe. Hence, it might be advantageous to measure compliance by geographical location. This could be in one of the following two methods:
  1. Measure compliance based on the traveler’s home base: for example you have a compliance ratio for US employees, and another ratio for European (or let’s say UK) employees for example. This measure will let you know which region is more compliance, and which region(s) is(are) less compliant. As a manager, you may want to consider replicating what you are doing well at high-compliance regions in those regions with less compliance rates
  2. Measure compliance based on traveler’s destination: this is very useful when you are embarking on new RFP/Sourcing project. For example, the manager under this method would like to know that all the company’s travelers have 80% compliance ratio in London, UK, but they have 15% compliance in Paris, France. This indicates that Paris represents a good opportunity to source more coverage, and gain more savings down the road.

Business unit
Many organizations like to measure compliance at the business unit level. There could be many reasons for doing so. The size of the organization could be too large to derive any meaningful conclusion for a general compliance ratio. A major company with multiple businesses like manufacturing, financial, and consulting businesses could be interested in measuring how each business is doing in terms of compliance and procurement practices. Another organization with multiple cost centers pertinent to multiple products, would be interested in measure how each product division is tracking.

Another reason could be a financial decision to attribute savings/cost to certain cost centers, and as such, the organization would be interested in measuring how each cost center is doing in terms of compliance, which could impact the future budgets, rewards, and/or targeting of more strict control measures in the future.

In some cases, organizations tend to give certain business units - or functions- certain level of ‘flexibility’ not extended to other units within the organization. For example, in the consulting or pharmaceutical worlds, organization could show more leniency when flying a high-profile client or a medical doctor and allow their special travelers certain exceptions not available to the average employees. Such organization might be interested in tracking such travel and booking separately.

Folio review to detect non-compliance
A more complex way to measure compliance - although I have seen it gaining more popularity recently - is to measure the folio level of spend. For example, the organization would pull folio spend data from hotels that would tell them exactly how much John Smith spent for the room rate, food and beverage, and on other amenities. Then the manager would compare the rate and amenity inclusions to the preferred rate provided by the property. If the actually paid rate is higher than the accepted preferred rate, then this could mean one of two things: either John had upgraded the room (against policy for example), or the hotel is charging more than the preferred rate. In both cases, the manager has to investigate further to reach a better conclusion. Was there no available standard room, and John had no choice but to upgrade? Or did John actually book a standard room, but the hotel charged a higher rate? Or it could be simply the hotel uploaded the wrong rates to the GDS system, and so on.

This is the value of reviewing and monitoring the folio data, as it could potentially reveal many issues that could be impacting compliance and spend patterns the high level compliance ratio cannot possibly provide

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