The document examines the costs of a manual expense filing and reimbursement process at a small company with 300 employees over 12 months. Through simulation, it was found that processing 2500 expense reports per year could cost the company up to $1.35 million in unbilled costs. The simulation identified that employees spent the most time gathering receipts and preparing reports, while managers were the second highest cost due to reviewing expenses. The analysis suggests streamlining the process through automation, expense thresholds for different approvers, and other methods to reduce hidden costs.
Strategize a Smooth Tenant-to-tenant Migration and Copilot Takeoff
Managing The Less Visible Processes
1. December 2009 | Project Performance Corporation | 7037487000
Managing the
Less Visible
Processes
Introduction Contents
Special Interest Articles
Many business process improvement initiatives seem to focus mainly on the
Introduction 1
very high visibility processes of the enterprise such as the supply chain,
Problem Description 2
order fulfilment or customer service management, while negelecting the Challenges 3
smaller but supporting everyday processes, including travel authorizations, Simulation 4
expense filing and timesheets. These smaller processes, when poorly Analysis 5
designed or designed without considerable care in the business rules and Conclusion 6
policies enforced, could mount in cost over a period of time.
This paper seeks to examine a simple but relatively common
implementation of a manual expense filing and reimbursement process and
using the help of BPM simulation tools, derive some insight into the true
costs of managing this process at a small company. In addition we identify
ways that organization could improve the ROI of an expense process in
order to maximize efficiency and effectiveness.
2. 2
Expense Report Filling & Reimbursement
Filling Expense Reports for process and estimating the hidden cost
reimbursement is a routine process could help executive decision makers
many organizations undertake. From push for significant process
expenses incurred during those business improvements. Below we try to identify
travels, lunch and dinner expenses, these bottlenecks and provide viable
hotel expenses to expenses incurred in solutions.
purchasing office supplies or software
products. Identifying the bottlenecks
associated with the expense report
$1.35 million in unbilled cost over a 12month period for a small company with 300 employees
Key Bottlenecks Problem Description
Lack of streamlined process that will enable Expense report filing and reimbursement is a routine process in
the expense report filling appear seamless
almost any organization today regardless of size or location. While
Hidden cost associated with process very few companies have fully automated processes, most
Redundant checks that slow up the process companies still make use of manual or semi‐automated processes.
Filing an expense report typically begins with an employee taking
Streamlining Validation rules
time (typically unbilled time) to prepare the report in accordance
with the norms and policies of the company. The filing process for
the employee involves gathering up of transaction receipts, locating
form templates, appropriately filling out the fields of the form,
checking, sigining and finally submitting the expenses to a reporting
manager for approvals. Senior managers would then approve /
disapprove the report and move it on to the finance group for further
approvals, filing, scheduling and ultimate payment to the employee.
In many instances, the finance team may have one or two levels of
approval before final payment is issued. Finally the employee verifies
payment to their bank account , signaling the conclusion of the
process.
3. 2
Challenges
There are two important challenges that may arise with this process:
• As a non billable activity (usually), it means the priority given to
filing expense reports relative to other revenue generating activity
is lower – an effect that is evident to the employee. While the
employee is motivated to recover their funds, the lower priority
attributed to the expense usually introduces a delay into the initial
filing of the expense report. This usually leads to a scramble at the
end of a financial review period to synchronize actual expenses
with the appropriate periods in which they were incurred. Older
unfiled expenses simply add to the complexity and workload.
• While each step of the process appears relatively simple and
straight forward, having too many redundant checks increases the
cost by requiring expensive resources to vet every single instance
of an expense. In addition to the lower priority participants may
place on their required actions, there usually is a tendency to
quickly approve small value expenses while spending a relatively
larger amount of time examining large expenses.
4. 4
Simulation
As a case study, we ran a BPM simulation of the expense filing process for a small company with 300 employees over a
12 month period. In a given week, about 60 employees submit expense report for reimbursement each week, and all
expenses for a given month must be filed before the month end. Expense reports filed ranged in value from $30 to
$6000. The policies enforced include:
• Manager approval s of expenses capped at $1000, but no floor.
• Senior manager approvals of expenses capped at $2000, but no floor.
• Managers, Accounts Payable (AP) clerks and Financial Controllers (FC) must review every expense report
before approving expenses as a check mechanism
• No petty cash reimbursement process in general.
• We assumed the following loaded costs (to the company) for the different resources as:
o Employees : $80/hr
o Managers: $120/hr
o AP Clerk: $70/hr
o Financial Controller : $100/hr
5. 4
5
Analysis
From our simulation results, it is clear that processing 2500 expense reports per year can cost a company
upto $1.35 million in unbilled cost. Depending on the distribution of the expense report value, the cost of
processing can be significant relative to the value of all expenses processed.
A number of insights gained from the simulation include:
Employees constitute the highest cost – with the gathering of receipts & report preparation
(photocopying and creating the actual inputs to the process) taking the greatest amount of time.
These costs could have been reduced in a number of ways:
o Automation of the process to reduce expense report creation time.
o Providing a simple way to upload expenses – investing in a common scanner pool to capture
receipts and tag them to expense reports; eliminating paper submissions to the extent
possible.
Approving managers constitute the second highest cost variable in the chain because they are the
most expensive resources of the process; relatively inefficient compared to the finance team and
likely to spend a greater amount of time reviewing expenses. Once again, a number of cost
reduction strategies could be considered:
o Building a floor on the value of expenses that need managerial review. The key is to strike
an organizationally acceptable balance that permits the least possible number of expenses
to be approved by a manager.
o Providing a petty cash pool to handle the very smallest transactions.
o Providing automated process management to facilitate quick approvals
o Building in escalation rules to limit delays in the overall process.
Financial controllers constitute a high cost as well because they are also relatively expensive and
they review each expense form (albeit for a very short period of time). However, because they are a
trained resource they have a much higher efficiency rate and will generally have a lower variation in
the time taken to perform their task.
o Financial controllers act as a reliable check in the process however, they do add cost to the
process. Organizations can tailor the need to get financial controller approvals only for
expenses exceeding a particular threshold.
o Compensate for the loss of the financial controller check with better training from accounts
payable clerks or random sampling by clerks on a routine basis.
Accounts Payable clerks constitute the lowest cost because they are very efficient relative to the
other participants and have significantly less work to do than a manager – who is the first line of
defense in catching errors and permitting workloads through. This role can benefit greatly from a
reduction in tasks that are tangential to the expenses approval and payment process such as
archiving of reports, report generation and payment submission.
6. 5
6
5
Project Performance Conclusion
Corporation
1760 Old Meadow Lane Organizations looking to identify areas of process improvements
7037487000
7037487001 should pay close attention to “less visible processes” in their
Ope.onibokun@ppc.com ;
james.nyika@ppc.com organizations. All processes regardless of priority to the company have
Simplifying the complex real costs incurred in their performance. As demonstrated, these costs
Find us on the Web: can be significant. Through careful business process and rule design,
www.ppc.com
along with the aid of simulation tools, organizations should raise the
priority of supporting processes; determine the true cost drivers of
their processes and improve them
About Authors
Mr. Ope Onibokun is a Business Process Engineer at Project Performance Corporation, a leading management
and IT consultancy firm based in Virginia. He has helped develop numerous enterprises BPM applications using
BEA’s Aqua Logic BPM platform and Appian Enterprise BPM platforms for several high‐profile clients (such as
Ullico Insurance, Government of Bermuda, DISA) utilizing multi‐tier and service oriented architectures. He
graduated with a master’s degree in Computer Science from the Johns Hopkins University specializing in Project
Management and Enterprise Computing. Ope is a great motivational speaker and his passions include reading
and traveling. He can be reached at ope.onibokun[at]ppc.com
Mr. James Nyika is a Technology Architect at Project Performance Corporation and he has worked for many
years architecting solutions for the US Federal Government and commercial enterprises. His particular areas of
specialty are Service Oriented Architectures, BPM methodology and Software‐as‐a‐service. Mr Nyika holds a
Computer Engineering degree and an MBA in Finance and Strategy. He can be reached at
james.nyika[at]ppc.com