How Static Travel Budgets Are Hurting Your Company
Dynamic Budget Algorithm: The Clever Stuff
During the 20th century, the United States government exerted control over the airlines that did business in the country. This meant that airlines couldn’t expand in any way or even set ticket prices without governmental approval first.
Until 1978, that is. That’s when the Airline Deregulation Act came into effect and with it, a new world of pricing. Airlines like Delta were slow to catch on and continued using a room full of people to manually set ticket prices for a long time — losing a great deal of money in the process.
Soon after, a man named Bob Cross convinced Delta to invest in creating the systems that would support dynamic pricing, or using computers and algorithms to set prices based on demand, availability, and a whole host of other factors. In other words, this is what every single business now does when it comes to pricing in our digitally connected world.
For airlines, hotels and all kinds of other businesses, dynamic pricing is a fantastic tool. For a travel manager, dynamic pricing is a pain. A flight ticket or hotel room that’s a bargain today could be priced at a 30% premium tomorrow, making it difficult to get the best price for your employees and your company.
Static travel budgeting adds to the difficulty. Most business travel planning is based on static budgets, and most suffer financially because travel is anything but static. Using it is like trying to run a marathon with a single leg: it’s just not enough.
Let’s take a look at what static budgeting is, and what you can do to more efficiently manage business travel.
What is a static budget?
A static budget is a type of budget that anticipates costs and expenses before the activity in question begins. When compared to the eventual results, the numbers from static budgets are usually very different.
Why you should avoid static business travel budgeting
Business travel is anything but static, so why would you want to use such a rigid tool to handle its nuances? In the world of business travel, a bargain one day could be a 30% premium the very next. A static budget doesn’t take into account how quickly prices change when booking flights, accommodation and hotels.
Secondly, during peak travel periods, everything is more expensive across the board. With a static budget, employees traveling during peak periods have limited options. During low travel periods, this trend is reversed, with traveling employees finding they have more than they need. In both cases, travel managers are either spending more than they need to or leaving money on the table.
Finally, every trip is different. Assigning a single, flat budget for employees across different departments does not take into consideration the smaller fluctuations that affect a traveler on the trip itself.
Dynamic budgeting is the answer
Travel managers relying on static budgeting, take note: a new and improved way of managing business travel budgeting is available
The benefits of dynamic budgeting are great: a transparent budget that varies with market pricing and is adjusted to dates and times of travel, employees who feel less limited, and a fair baseline created for every individual trip. Together, this means more money spent and a more comfortable trip for everyone involved.
TravelPerk’s proprietary software implements a brilliant dynamic data-driven budgeting algorithm that works wonders in streamlining the travel buying process.
Our software not only displays the cheapest travel options, but also creates a real-time budget backed by a clever algorithm that keeps budgets fair to the employee doing the traveling.
Your company’s travel policies inform the way the algorithm works (e.g. always economy class flights, 3-star hotel standard, etc.). Don’t be afraid to be as specific as you like: it’s possible to do everything from prioritize certain airlines to excluding specific airports, going as far as creating separate policies for different traveler groups.
All this information is applied to an employee’s upcoming trip, using actual real-time pricing data to determine the fairest price to pay according to the traveler’s needs.
TravelPerk is the best travel management partner you can have
While dynamic budgeting allows travelers to book travel above these real-time budgets, many companies ultimately find tackling travel management this way to be a fairer and more equitable method, versus using static budgets that don’t reflect the reality of volatile pricing changes due to peaks and troughs in demand for travel services.
Our algorithm is unique — no one else is doing anything remotely like this. You could even call it our secret sauce. And office and travel managers love using it.