Control Your Bottom Line with Exception Management

Understanding the true cost of exceptions can help you manage your bottom line costs for your relocation program.

In a NuCompass survey, corporations were asked to identify the three biggest challenges in their job related to employee mobility, and the answers were: cost management, exception management, and ensuring a competitive mobility program. Clearly, cost management, properly balanced to create a competitive program, is the main concern of corporations today.

A key area for effective cost control is to review areas related to the exception management process and create a program that mirrors your company culture and goals.

Fees vs. Costs

When reviewing the total cost to operate an employee mobility program, many companies focus on the fees being paid to the Relocation Management Company (RMC). A logical place to start, if it weren’t for the fact that typically, only 3% or less of the total spend on employee mobility is attributable to service fees charged by the RMC for U.S. domestic programs.

This is because RMCs generate their primary revenue in the form of referral fees from the suppliers who deliver services to the employee. The primary source of referral fee revenue comes from the real estate transactions related to relocation and the household goods move (this is not true for global moves where there is less referral revenue to offset fees from the corporation).

Ensuring that you are paying competitive fees to your RMC is important. However, focusing on the 3% associated with fees, while ignoring the 97% spent on direct costs related to the move, is not the most effective cost reduction strategy.

Exceptions as a Cost Component
In another study conducted by NuCompass to investigate the effect of exception spend on total program costs, we found some interesting results. Of the corporations surveyed, the amount spent on exceptions was an average of 12.5% of the total spent on mobility. The range in exception spend went from 7.4% up to 18.7%. As a general rule, if your company is spending more than 10% of its total dollars on exceptions, it’s a signal that it’s time to take a look at your program. You need to determine if certain policies should be updated or if you need to review how you manage the exception process.

At least in theory, an exception that is granted too often eventually becomes a part of the policy, so the question must be asked if it’s time for some adjustments. Some things to consider when reviewing policy exception spend include:

• What main categories are exceptions being granted in?
• Is there some employee need that is consistently going unmet?
• How are policy exception requests handled or routed in your company?
• Is there a centralized person or group where exceptions are managed and controlled?
• Do you need a “bad cop” or senior level manager to help reduce exception requests through added scrutiny and a more specific internal approval process?
• Do divisional managers make policy exception decisions without the proper guidance or cost awareness?
• How does your company culture influence the exception process?
• Is there a way to deliver services or benefits in a different manner that will reduce the need for exceptions and their related costs?

Understanding the “True Cost” of Exceptions
Not all exceptions result in added cost. In some cases, deviating from policy can actually reduce costs. For example, if an employee’s move-in date on the new home is delayed, it may be less expensive to pay for “wait time” by leaving the employee’s household goods in the truck than to move the goods into and out of storage. Your policy may not cover wait time on the truck, but includes up to 30 or 60 days of storage. So, while this is an “exception” to policy, the trade off in costs can actually reduce costs.

In this example, strict adherence to written policy could result in higher costs and increases the chances of damage to the employee’s belongings, since they would be placed into and then taken out of storage. This and other “trade-offs” should be recorded as a policy exception, so that you can see when and why employees deviated from your written policy.

NuCompass tracks policy exceptions and makes recommendations to clients based on trends that are captured in the data or current competitive practices. We provide “true cost” information to clients when an exception is being requested by classifying exceptions as “Additional Cost,” “Cost Neutral,” or “Cost Savings”. This allows us to properly categorize exceptions for a given time period and fully understand both the nature and true costs associated with their policy exceptions.

Conclusion and Summary
Having the right information on actual spend on exceptions should allow you to design an exception management strategy that provides the right level of flexibility and support for your employees, mirror your culture, and manage total mobility costs effectively.

Practicing the steps below will help you manage exceptions and result in a cost-effective and competitive employee mobility program. Examine your exception spend percentage rate vs. total spend to determine if there are potential issues.

1. Understand your “true cost” of exceptions
2. Identify exception request patterns to find gaps in your policy
3. Be strategic and flexible about how you handle exceptions requests based on your culture and goals
4. Partner with your RMC to identify issues and work through policy or approach solutions