INTERNATIONAL BACCALAUREATE

Business and Management Internal Assessment

Should SATORP authorize per-diem for employees on short-term assignments to Singapore?
Student Name: Alma Bawzeer Candidate Number: 000736-010 Subject: Business and Management Centre Number: 0763 Word Count: 1974

May Session 2012

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ACKNOWLEDGMENTS

I would like to thank Mr Tim Woods, my Business and Management teacher, for his patience, dedication and help throughout the project. Also, I would like to thank Mr AlOtaibi for his time and help with the interviews and for answering all the doubts I had about the situation. Moreover, I would like to thank all the employees of SATORP that were interviewed and surveyed throughout this research, shared their expense reports and their valuable input.

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TABLE OF CONTENTS
Executive Summary ..3 1.0 Introduction ..7 2.0 Methodology 8 3.0 Main Results and Findings ..9 3.1 Financial Findings .9 3.2 Survey Findings 10 4.0 Analysis and Discussion of Results .14 5.0 Evaluation 16 6.0 Conclusion and Recommendations 18 7.0 Works Cited........................................................................................................................ 19 8.0 Appendences .20 8.1Appendix One .20 8.2 Appendix Two ...21 8.3 Appendix Three 23

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EXECUTIVE SUMMARY

SATORP is a global oil company, embarking on a new refinery project. To properly monitor progress, its employees are required to go on business trips to different countries. SATORP usually reimburses its employees the actual expenses that they incur in their travels but recently, the HR manager has suggested using per-diem rates. The purpose of this report is to determine whether SATORP should authorize per-diem for employees on shortterm assignments in Singapore. This research was carried out by conducting primary research, such as interviews with the HR manager to assess the situation and see what were the benefits and drawbacks of introducing a per diem as a new business travel policy. Furthermore, surveys were conducted with employees that usually go on business trips, to have their opinion about the matter and how will such a decision affect their work performance. Secondary research was used to compliment the primary research, where some employees expenses reports were taken to calculate financial analysis of the situation. By the end of this research, it is highly recommended that SATORP implements the changes to per diem, where not only will it motivate the employees, but also result in large cost savings for the firm.

Word Count: 198

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RESEARCH PROPOSAL

Research Question: Should SATORP authorize per-diem for employees on short-term assignments in Singapore? Theoretical framework: Rationale for study:

SATORP is a global company and to properly monitor progress, its employees are required to go on business trips to different countries. SATORP usually reimburses its employees the actual expenses that they incur in their travels but recently, the HR manager has suggested using per-diem rates. The purpose of this report is to determine whether that will be beneficial for the company. There is a dearth of research on the effects of per-diem rate on a company and my research will contribute to the literature. Also, as SATORP is a global company, it has to send its employees on overseas business trips very often and even small cost savings can accumulate and be significant. Areas of syllabus to be covered:

1. SWOT analysis - To analyse the general position of the company. 2. Maslows hierarchy of needs - To analyse the effect on motivation of the new policy. 3. Financial analysis - To determine the more profitable of the expense report or the perdiem option. 4. Lewins Force field analysis To discuss and evaluate the various driving and restraining forces for the decision.

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Methodology: Primary research Interview the human resources manager, Mr AlOtaibi and a questionnaire for employees to find their opinion about the proposed change. Secondary research The financial statements of the company and current academic opinion about the issue from research journals, books and other sources will be discussed to predict the effect of change on the company. Anticipated possible difficulties and solutions: Anticipated problems Anticipated solutions

Difficult to get an interview due to busy Use IT and set up dates in advance schedules Global company so sample size is Try to gain data from secondary resources to complement primary research.

proportionally small

Action plan: Task Background knowledge on SATORP. Period 30th April 2011 Topic question slightly modified. Interview and questionnaire on the 8th. Remarks

st th Interviewing the finance director and 1 10 May

collecting secondary data from the organization. Interviewing and handing

th st th out 11 May 1 Manager absent on the 12 ., so completed Interview over June questionnaires to the employees. Skype .

Writing 1st Draft

2nd June 3rd 16th June expense reports September collected. 4th September 21st September

Editing the essay.

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Submission of draft.

22nd September

Submitted.

Revision of first draft.

10th October Editing and reviewing final 8th November draft. 8th Novemeber

Final draft due.

Word Count (Research proposal): 300

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1.0 INTRODUCTION

SATORP1 is a newly established joint venture company between the French TOTAL and SAUDI ARAMCO oil companies to build and operate an oil refinery in Jubail, Saudi Arabia. SATORPs Jubail project employs thirteen international contractors to build the refinery. The project spans a period of two years and many employees are required to travel to contractors main offices in Europe and Far East to review the design and the progress. SATORPs travel policy only allows employees to claim actual expenses of their business trips for the company to pay. Per-diem is the specific amount of money an organization provides its employees on business trips to spend per day (Wikipedia.com), and gives them the advantage of receiving the remaining of the per diem if not fully used that day. SATORPs employees have repeatedly expressed concerns among themselves about the current business travel policy as they are losing money during business assignments and want the company to authorize per-diem payments as an option. This has therefore led me to the following research question: Should SATORP authorize per-diem for employees on short-term assignments in Singapore?

SATORP: Saudi Aramco Total Oil Refining Petrochemical company.

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2.0 METHODOLOGY

To determine whether SATORP should proceed with per-diem payments to cover their employees expenses on their business trips, primary research was undertaken, as a survey was conducted in the company premises and the employees were informed that their responses will be kept confidential. Furthermore, the interview with Mr AlOtaibi was conducted at three different timings, once in person, and twice over Skype. The questions were sent in advance to the manager to allow for the preparation of thoughtful answers.

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3.0 MAIN RESULTS AND FINDINGS

Financial Findings:

To analyse the financial effects of the change in policy, the expense reports 2 of the employees on previous trips were analysed. The data is given in Table 1 below:
Per Diem Variance Amount required 6076 2775.06 4167 5571.44 6076 2523.25 7871 5031.64 6076 -1796.79 2315 1549.09 6063 16058.33 3063 3337 2486 2848.73 6019 156.31 7408 -2956.23 57620 35097.83

Actual Expense 8851.06 9738.44 8599.25 12902.64 4279.21 3864.09 22121.33 6400 5334.73 6175.31 4451.77 92717.83

Days 13 9 13 17 13 5 11 6 5 13 16

15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 20000 40000 60000 80000 100000 Actual Expense

Per Diem Amount required

Table 1: Actual expenses and days of employees business trips, and per diem amount required to cover expenses.

The first column gives the expenses that were actually claimed by the employees. The per diem amount is calculated based on rates given by US department of state. 3 If the company had a per diem policy rather than an expense account policy, the company would have saved, on average, 37.85%. This is a huge cost saving especially given the fact that this is a regular expense for the company.
2 3

Reference in the appendences. http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1172

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Survey analysis:

These results have been deduced from the surveys that were conducted with the employees of SATORP, which can be found in the appendences.

Effect on Motivation to work

0% 0%

30%

Significantly improve motivation Improve motivation 50% No change in Motivation Demotivate Significantly demmotivate

20%

Figure 1: Effect of per diem on motivation to work

The per diem rate is normally perceived as good by the employees. Most employees believe it will significantly improve (50%) or improve (20%) their motivation. None of the employees believed it will worsen it.4

Fig 1.

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Figure 2: Box and Whisker plot of response to reasonable amount of money required in per-diem rate to live comfortably.

Employees gave a range of answers for reasonable amount to cover their expenses (fig 2.) but the average was $400. 75% of employees selected amounts between $180 and $510. The recommended amount by US government, also is used by the company, is $4635 hence the company should be able to keep its employees happy with a per-diem rate of $463.

http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1141

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Effect of expense account on overall spending

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Effect on others of expense account on overall spending

7 6 5 4 3 2 1 0

Table 2: Effect of an expense account on overall spending (self-reported and on others)

As this can be seen from table 2, most employees believe that an expense account encourages significant overspending (30%) or overspending (40%) by them. 60% also believe that it encourages significant over-spending or overspending (30%) by others. This shows that the general consensus is that there is significant over-spending due to the expense policy. This makes sense as with no limits over how much the employees can spend, the employees are more likely to engage in over-spending.

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Will per diem effect ability to do business?

Significantly worsen the ability to do business Worsen the ability to do business No effect Will improve ability to do business Will significantly improve the ability to do business

Figure 3: Effect of per-diem rate on ability to do business

Employees also believed that a limited amount per month will limit their ability to do business. This is shown in the figure 3. Many employees may choose to save the per-diem amount they receive and hence may end up cutting corners which will hurt the business. For example, they may refuse to take a client out for dinner even if it may help them build longterm business relationship. They may also choose to travel in cheaper cabs and stay in cheap hotels which may affect the image of the company in front of important clients.

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4.0 ANALYSIS AND DISCUSSION OF RESULTS

A SWOT analysis diagram was done to assess SATORPs current position as a company.

Strengths World leader in oil refinery and related business. Strong financial position and established image as an innovative and ethical company. Global business and attracts talent all over the world. Worlds largest oil reserve.

Weaknesses Shortage of experienced local expertise. Its remote location discourages some expertise in joining the company.

Opportunities High demand for petrochemical biproducts, hence they can expand in their business.

Threats Volatile oil market prices.

Table 3: SWOT Analysis of SATORP.

The company is a world leader in oil refinery business and has a very strong financial position. It is able to attract talent from all over the world and is able to exploit competitive advantage of countries across the globe due to its multi-national nature. However, their main weakness is shortage of local talent. Due to its vast operations, they are operating in countries where local talent is not enough to meet all their needs. Some of the locations are also very remote and this discourages people from joining. The company makes up for this by keeping people connected through technology and also by regularly flying experts around different locations. It is the reason why this research question is so
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important, as even though the company needs to keep costs at a minimum, it must also ensure that enough talented people are available to solve problems worldwide. Oil refining is an unpredictable business as the oil prices keeps fluctuating but in recent months; the high demand for petro-chemical bi-products is driving business forward. As the company has the highest oil reserves in the world so the only serious problem is the lack of talent.

Maslows hierarchy of needs: A per-diem allowance will allow the workers to spend fewer amounts than they normally would, and save the rest on themselves. This may increase in motivation but also may make them less likely to spend money, even then it would be beneficial from a business point of view, where they may be reluctant take out clients. Most employees seem to think that the effect on motivation will not be significant. This is supported by our survey finding where majority (50%) agreed that it will actually improve motivation.
Figure 4 : Maslow's hierarchy of needs theory pyramid.

Maslows hierarchy of needs can help us analyse the effect of motivation. Maslows theory focuses on the psychological needs of workers, as he believed that people are motivated by factors other than money. These psychological needs, as seen in Figure 4, must be met in order to motivate the employee. Maslows research presented five levels of needs, called the hierarchy of needs. Where workers would need to be satisfied with all lower level needs being met before they could progress to higher level needs (Hoang 272). Most of the workers on short-term assignments are consultants or senior managers; hence it can be presumed that their lower order needs are satisfied. They should be

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primarily motivated by the challenge of the job and their self-esteem for doing the work. It is unlikely they will face financial problems. A per-diem allowance hence should have no effect on the motivation of the workers. Still, the per-diem allowance should be enough to cover their basic physiological needs such as food and lodgings. As the average amount required (as per the survey: $400) to cover living expenses is less than the amount company is planning to pay (as per recommendation of US department of state: $463), it is unlikely employees will face problems.

5.0 EVALUATION The force field analysis can help us analyse the driving and restraining forces for this decision. The weightages are assigned in consultation with Mr AlOtaibi who has a good experience with the employees of the company and hence is in a better position to analyse the decision.
Weightage 5 Driving forces Makes employees responsible for controlling their expenses. Allows employee more freedom in selecting accommodation and services on their business trip. Simplifies the process of producing expense reports, hence spending less time on them. Total Restraining forces Employee losing money due to other expenses incurred which are not covered by the company. May hinder ability of the employees to do business. Weightage 5

11

Total

10

Table 4: Lewin's Force Field Analysis of introducing rep diem to SATORPs travel policy.

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The weightage for each force was decided in consultation with Mr AlOtaibi as he is in a good position to determine the importance of each factor due to his experience with the firm. The change will make employees responsible for controlling their expenses and hence will encourage them to conserve costs. This is a very important factor as it can have a direct impact on the bottom line. It will also allow employees more freedom in selecting their accommodation and dining. Employees who want to stay in more expensive hotels than the company allows can pay the extra amount out of pocket while employees who are content with cheaper hotels may save money. This may motivate the employees but still is not considered an important factor as the employees are there to do business at the end of the day and some discomfort is expected. Changing the policy also allows the employees to spend without worrying about expense reports. Under the current policy, they have to keep each and every receipt which is troublesome and time consuming. The finance department also has to verify and cross check everything. This result in a huge wastage of time and a policy change will reduce the cost in terms of time wasted significantly. However, a policy change means that employees will have to fit in their expenditure within the budget allocated and hence they are liable to lose money. This may make them more conservative in their spending habits and hence may lead them to hold back spending money even where it can benefit the company. Still, if the company implements are policy where extra-ordinary expenses can be claimed, this problem can be avoided.

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6.0 CONCLUSION AND RECOMMENDATIONS

As can be seen, the driving forces outweigh the restraining forces hence the company should implement the change. It will not only improve motivation but will also result in large cost savings for the firm. Employees will be given more freedom; they will be able to decide whether to save money or to spend a little extra for a more comfortable stay. It will also make them responsible for their own finances and hence encourage responsible behaviour. To counter any negative effect of the policy, the company can implement an expense reimbursement policy for extra-ordinary expenses for example doing a favour for a client. The company can also continuously monitor the situation and perhaps introduce the policy in several stages to ensure the change is actually beneficial for the company. The executives should also be given some guidance on budgeting to help them monitor their finances. Limitations and future recommendations: The research uses self-reported data that may be biased and inaccurate. Many of the finding depend on the survey and interview from the manager, where they may have an incentive to choose the option that will end up benefiting them financially even if doesnt benefit the company. On-going research is required to ensure that implementation of the per-diem policy doesnt result in an increase in expenses for the company. The company should research whether a hybrid of the two methods will be more suitable. For example, a fixed amount can be given for lodging and meals while an expense approach can be taken for incidentals and other expenses. This will limit the disadvantages of both methods.

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7.0 Works Cited

Hoang, Paul. Business & Management. [Melton, Vic.]: IBID, 2007. Print. Home :: SATORP :: Saudi Aramco Total Refining and Petrochemical Co. Web. 12 June 2011. <http://www.satorp.com/>. "Maslow's Hierarchy of Needs - Motivation Theory." Abraham Maslow - Father of Modern Management Psychology. Web. 07 Oct. 2011. <http://www.abraham-maslow.com/m_motivation/Hierarchy_of_Needs.asp>. "Per Diem." Wikipedia, the Free Encyclopedia. Web. 02 July 2011. <http://en.wikipedia.org/wiki/Per_diem>. U.S. Department of State | Welcome to Office of Allowances. Web. 07 Aug. 2011. <http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1092> U.S. Department of State | Welcome to Office of Allowances. Web. 08 Aug. 2011. <http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1141> U.S. Department of State | Welcome to Office of Allowances. Web. 08 Aug. 2011. <http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1169> U.S. Department of State | Welcome to Office of Allowances. Web. 08 Aug. 2011. < http://aoprals.state.gov/web920/per_diem_action.asp?MenuHide=1&CountryCode=1172>

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8.0 APPENDECES

8.1 Appendix One Questionnaire Hello, my name is Alma Bawzeer, Im doing this survey to complete my graduation requirements towards my IB Diploma program. Your responses will be kept anonymous and will only be shared in the aggregate, so please try to be as honest as possible. The company is thinking about of introducing a per-diem rate such that instead of you having an expense account, you will be given a fixed amount of money each day. Questions: 1. How will this affect your motivation to work? Significantly improve it Improve slightly Remain the same Decrease it Significantly decrease it

2. How much amount do you think will be sufficient for daily expenses without making finance a big issue? __________

3. Do you think an expense account encourages overspending by you?

Significant overspending

Slight overspending

No change

Underspending

Significant underspending

4. Do you think an expense account encourages overspending by others?

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Significant overspending

Slight overspending

No change

Underspending

Significant underspending

5. Will a limited amount affect your ability to conduct business (take out a client for dinner etc.) Will significantly limit my ability to do business Will limit my ability to do business No change Will improve Will my ability to do business significantly improve my ability to do business

6. What is your number one concern related to the current reimbursement policy for business travel to Singapore? _____________________________________________________________ _____________________________________________________________

7. What is your motivation for requesting full per diem? _____________________________________________________________ _____________________________________________________________

8. Why, in your opinion, should the company allow full per diem? _____________________________________________________________ _____________________________________________________________

9. How many and how long where the business assignments you undertook since the beginning of 2011? _____________________________________________________________

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8.2 Appendix Two Interview (With SATORPs Financial Representitve) Question: Does SATORPs business travel expenses policy allow full per diem for business related activities? Answer: Full per diem is the daily amount to cover transportation, meals, incidentals and lodging expenses for employees travelling on offices. SATORP policy only allows for meals, incidentals, transportation and lodging expenses to be claimed and reimbursed based on reasonable and actual expenses.

Question: In your view, is there a benefit from company perspective to use full per diem rates instead of actual expenses? Answer: Per diem rates can be a good alternative to having to account for actual business expenses incurred. However, it is not as if there's no substantiation required at all. The employee must still account for the time, place, and business purpose of the expense. In my opinion, if you would rather not have to keep up the strictures of an accountable plan, the lessened burden of the per diem is a plus. It also tends to cut down on the expenditures of employees. So, which is better? To me, it comes down to two issues:

1. Recordkeeping. If you would rather not have to keep up the strictures of an accountable plan, the lessened burden is a plus. It also tends to cut down on the expenditures of employees (validate) 2. Cost difference. If you're finding that actual costs incurred far exceed the per diem rates, then it makes more sense to go with per diem rates.

Travel expenses incurred while on business will be paid for by SATORP if the expenses are reasonable, properly approved and documented.

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Business approved travellers who incur such expenses should neither lose nor gain personal funds as a result. This statement covers reimbursement for air transportation, car rentals, hotel lodging, meals, gratuities, tolls and parking, telephone calls, and other miscellaneous expenses.

Actual reasonable expenses will be reimbursed subject to the limits set forth in company guidelines.

Benefits of actual lodging and meal expenses in lieu of per diem:

The traveller is required to attend a meeting or conference where meals and lodging

must be obtained at a prearranged place, and lodging consumes all or most of the per diem allowance

The business trip is to an area where lodging and meal costs have temporarily

increased because of a special event or function (e.g., a national or international sports event)

The business trip is to an area where lodging and meal costs have temporarily

increased because of a special event or function and affordable lodging is not available within a reasonable commuting distance or the costs of commuting consume the savings from occupying less expensive lodging

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8.3 Appendix Three Different Expense Reports

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