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

000763-010

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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.......20 8...0 Methodology …………………………………………………………………………………………………………………8 3..........0 Works Cited...0 Main Results and Findings …………………………………………………………………………………………….......000763-010 TABLE OF CONTENTS Executive Summary ……………………………………………………………………………………………………………..........0 Introduction ………………………………………………………………………………………………………………….3 Appendix Three ……………………………………………………………………………………………………23 2 ...........0 Conclusion and Recommendations ………………………………………………………………………………18 7...1 Financial Findings ……………………………………………………………………………………………….2 Survey Findings …………………………………………………………………………………………………10 4......................14 5.......... 19 8.........3 1......9 3.....0 Appendences ………………………………………………………………………………………………………………..1Appendix One ………………………………………………………………………………………………………..7 2..........21 8......0 Analysis and Discussion of Results ………………………………………………………………………………...2 Appendix Two …………………………………………………………………………………………………….20 8.........0 Evaluation ……………………………………………………………………………………………………………………16 6....9 3..

where not only will it motivate the employees.000763-010 EXECUTIVE SUMMARY SATORP is a global oil company. Furthermore. it is highly recommended that SATORP implements the changes to per diem. The purpose of this report is to determine whether SATORP should authorize per-diem for employees on shortterm assignments in Singapore. 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. By the end of this 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. Secondary research was used to compliment the primary research. embarking on a new refinery project. Word Count: 198 3 . This research was carried out by conducting primary research. but also result in large cost savings for the firm. surveys were conducted with employees that usually go on business trips. where some employees’ expenses reports were taken to calculate financial analysis of the situation. to have their opinion about the matter and how will such a decision affect their work performance. To properly monitor progress. its employees are required to go on business trips to different countries.

To analyse the effect on motivation of the new policy.To analyse the general position of the company.  Areas of syllabus to be covered: 1.000763-010 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. Lewin’s Force field analysis – To discuss and evaluate the various driving and restraining forces for the decision. 3. it has to send its employees on overseas business trips very often and even small cost savings can accumulate and be significant. There is a dearth of research on the effects of per-diem rate on a company and my research will contribute to the literature. as SATORP is a global company.To determine the more profitable of the expense report or the perdiem option. the HR manager has suggested using per-diem rates. 4. 2. Financial analysis . The purpose of this report is to determine whether that will be beneficial for the company. 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. Also. 4 . SWOT analysis . Maslow’s hierarchy of needs .

Interview and questionnaire on the 8th. Skype .000763-010 Methodology:  Primary research Interview the human resources manager.. Period 30th April 2011 Topic question slightly modified. proportionally small Action plan: Task   Background knowledge on SATORP.  Interviewing and handing th st th out 11 May – 1 Manager absent on the 12 . so completed Interview over June questionnaires to the employees. Mr AlOtaibi and a questionnaire for employees to find their opinion about the proposed change. 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. 5 . 4th September 21st September Editing the essay.   Writing 1st Draft 2nd June – 3rd 16th June expense reports September collected. books and other sources will be discussed to predict the effect of change on the company. Remarks st th Interviewing the finance director and 1 – 10 May collecting secondary data from the organization.  Secondary research The financial statements of the company and current academic opinion about the issue from research journals.

10th October – Editing and reviewing final 8th November draft. Revision of first draft. 8th Novemeber Final draft due. Word Count (Research proposal): 300 6 . 22nd September Submitted.000763-010    Submission of draft.

This has therefore led me to the following research question: Should SATORP authorize per-diem for employees on short-term assignments in Singapore? 1 SATORP: Saudi Aramco Total Oil Refining Petrochemical company. SATORP’s 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. and gives them the advantage of receiving the remaining of the per diem if not fully used that day. 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. 7 . Per-diem is the specific amount of money an organization provides its employees on business trips to spend per day (Wikipedia.com). SATORP’s Jubail project employs thirteen international contractors to build the refinery. Saudi Arabia.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. SATORP’s travel policy only allows employees to claim actual expenses of their business trips for the company to pay.000763-010 1.

primary research was undertaken. once in person.000763-010 2. Furthermore. as a survey was conducted in the company premises and the employees were informed that their responses will be kept confidential. the interview with Mr AlOtaibi was conducted at three different timings. and twice over “Skype”. The questions were sent in advance to the manager to allow for the preparation of thoughtful answers. 8 .0 METHODOLOGY To determine whether SATORP should proceed with per-diem payments to cover their employees expenses on their business trips.

64 4279. 37.64 6076 -1796.31 7408 -2956.06 9738.25 12902.state.85%.09 6063 16058. The first column gives the expenses that were actually claimed by the employees. 3 If the company had a per diem policy rather than an expense account policy. The per diem amount is calculated based on rates given by US department of state.73 6019 156.gov/web920/per_diem_action.09 22121. This is a huge cost saving especially given the fact that this is a regular expense for the company.000763-010 3. on average. The data is given in Table 1 below: Per Diem Variance Amount required 6076 2775.83 Actual Expense 8851.44 8599. the company would have saved.33 6400 5334.31 4451.33 3063 3337 2486 2848.79 2315 1549.06 4167 5571.0 MAIN RESULTS AND FINDINGS Financial Findings: To analyse the financial effects of the change in policy.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.77 92717.21 3864.73 6175. 2 3 Reference in the appendences. the expense reports 2 of the employees on previous trips were analysed. and per diem amount required to cover expenses.asp?MenuHide=1&CountryCode=1172 9 .44 6076 2523. http://aoprals.25 7871 5031.23 57620 35097.

None of the employees believed it will worsen it. 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.4 4 Fig 1.000763-010 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. 10 . Most employees believe it will significantly improve (50%) or improve (20%) their motivation.

75% of employees selected amounts between $180 and $510.asp?MenuHide=1&CountryCode=1141 11 . 5 http://aoprals.gov/web920/per_diem_action. The recommended amount by US government. Employees gave a range of answers for reasonable amount to cover their expenses (fig 2. is $4635 hence the company should be able to keep its employees happy with a per-diem rate of $463.) but the average was $400.000763-010 Figure 2: Box and Whisker plot of response to reasonable amount of money required in per-diem rate to live comfortably. also is used by the company.state.

5 2 1.000763-010 Effect of expense account on overall spending 4. This makes sense as with no limits over how much the employees can spend. 12 .5 1 0.5 3 2.5 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.5 4 3. This shows that the general consensus is that there is significant over-spending due to the expense policy. 60% also believe that it encourages significant over-spending or overspending (30%) by others. the employees are more likely to engage in over-spending.

they may refuse to take a client out for dinner even if it may help them build longterm business relationship. This is shown in the figure 3.000763-010 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. 13 . For example. 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. Many employees may choose to save the per-diem amount they receive and hence may end up cutting corners which will hurt the business.

It is the reason why this research question is so 14 .  Global business and attracts talent all over the world. However. 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. Table 3: SWOT Analysis of SATORP. hence they can expand in their business. Weaknesses  Shortage of experienced local expertise. they are operating in countries where local talent is not enough to meet all their needs. Strengths  World leader in oil refinery and related business.000763-010 4. their main weakness is shortage of local talent.0 ANALYSIS AND DISCUSSION OF RESULTS A SWOT analysis diagram was done to assess SATORP’s current position as a company. Opportunities  High demand for petrochemical biproducts.  Strong financial position and established image as an innovative and ethical company.  Its remote location discourages some expertise in joining the company. The company is a world leader in oil refinery business and has a very strong financial position. The company makes up for this by keeping people connected through technology and also by regularly flying experts around different locations. Some of the locations are also very remote and this discourages people from joining. Threats  Volatile oil market prices. Due to its vast operations.  World’s largest oil reserve.

as he believed that people are motivated by factors other than money. Most employees seem to think that the effect on motivation will not be significant. 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. This may increase in motivation but also may make them less likely to spend money. where they may be reluctant take out clients.000763-010 important. Most of the workers on short-term assignments are consultants or senior managers. must be met in order to motivate the employee. called the hierarchy of needs. 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. and save the rest on themselves. Maslow’s hierarchy of needs: A per-diem allowance will allow the workers to spend fewer amounts than they normally would. They should be 15 . hence it can be presumed that their lower order needs are satisfied. even then it would be beneficial from a business point of view. Figure 4 : Maslow's hierarchy of needs theory pyramid. This is supported by our survey finding where majority (50%) agreed that it will actually improve motivation. Where workers would need to be satisfied with all lower level needs being met before they could progress to higher level needs (Hoang 272). These psychological needs. as seen in Figure 4. Maslow’s research presented five levels of needs. as even though the company needs to keep costs at a minimum. Maslow’s theory focuses on the psychological needs of workers. Maslow’s hierarchy of needs can help us analyse the effect of motivation.

5. 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. Simplifies the process of producing expense reports. May hinder ability of the employees to do business. Weightage 5 2 5 4 11 Total 10 Table 4: Lewin's Force Field Analysis of introducing rep diem to SATORP’s travel policy. the per-diem allowance should be enough to cover their basic physiological needs such as food and lodgings. Still. it is unlikely employees will face problems. A per-diem allowance hence should have no effect on the motivation of the workers. Weightage 5 Driving forces Makes employees responsible for controlling their expenses. 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). Allows employee more freedom in selecting accommodation and services on their business trip.000763-010 primarily motivated by the challenge of the job and their self-esteem for doing the work. Total Restraining forces Employee losing money due to other expenses incurred which are not covered by the company. It is unlikely they will face financial problems. 16 .0 EVALUATION The force field analysis can help us analyse the driving and restraining forces for this decision. hence spending less time on them.

This result in a huge wastage of time and a policy change will reduce the cost in terms of time wasted significantly. This is a very important factor as it can have a direct impact on the bottom line. they have to keep each and every receipt which is troublesome and time consuming. The change will make employees responsible for controlling their expenses and hence will encourage them to conserve costs. 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. Changing the policy also allows the employees to spend without worrying about expense reports. if the company implements are policy where extra-ordinary expenses can be claimed. 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. However. The finance department also has to verify and cross check everything. 17 . Under the current policy. 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. It will also allow employees more freedom in selecting their accommodation and dining. Still. this problem can be avoided. 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.000763-010 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.

It will not only improve motivation but will also result in large cost savings for the firm. Limitations and future recommendations: The research uses self-reported data that may be biased and inaccurate.000763-010 6. they will be able to decide whether to save money or to spend a little extra for a more comfortable stay. To counter any negative effect of the policy. The executives should also be given some guidance on budgeting to help them monitor their finances. the company can implement an expense reimbursement policy for extra-ordinary expenses for example doing a favour for a client. 18 . Many of the finding depend on the survey and interview from the manager. Employees will be given more freedom. 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.0 CONCLUSION AND RECOMMENDATIONS As can be seen. On-going research is required to ensure that implementation of the per-diem policy doesn’t result in an increase in expenses for the company. where they may have an incentive to choose the option that will end up benefiting them financially even if doesn’t benefit the company. The company should research whether a hybrid of the two methods will be more suitable. It will also make them responsible for their own finances and hence encourage responsible behaviour. 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 driving forces outweigh the restraining forces hence the company should implement the change. For example.

2011. <http://aoprals. 12 June 2011.com/m_motivation/Hierarchy_of_Needs. Print." Wikipedia.000763-010 7.state.S. 2011.Father of Modern Management Psychology. Web. Vic.state. Web. 07 Aug. Department of State | Welcome to Office of Allowances.S.gov/web920/per_diem_action. [Melton.wikipedia.S. 2011.state. U. Web. 02 July 2011. 2011. 2007. 08 Aug.S. the Free Encyclopedia.0 Works Cited Hoang.abraham-maslow. 2011.org/wiki/Per_diem>. < http://aoprals.asp?MenuHide=1&CountryCode=1141> U.com/>.state.gov/web920/per_diem_action. Department of State | Welcome to Office of Allowances. <http://aoprals. 08 Aug. <http://www.gov/web920/per_diem_action. Department of State | Welcome to Office of Allowances. Web. Web.asp?MenuHide=1&CountryCode=1169> U.Motivation Theory. <http://en. Department of State | Welcome to Office of Allowances. <http://www. <http://aoprals.asp>.]: IBID. Business & Management.asp?MenuHide=1&CountryCode=1092> U. Web.gov/web920/per_diem_action. Web. Home :: SATORP :: Saudi Aramco Total Refining and Petrochemical Co." Abraham Maslow . 08 Aug. "Maslow's Hierarchy of Needs .satorp.asp?MenuHide=1&CountryCode=1172> 19 . Paul. 07 Oct. "Per Diem.

Do you think an expense account encourages overspending by you? Significant overspending Slight overspending No change Underspending Significant underspending 4.1 Appendix One Questionnaire   Hello.  Questions: 1. Your responses will be kept anonymous and will only be shared in the aggregate. How much amount do you think will be sufficient for daily expenses without making finance a big issue? __________ 3.0 APPENDECES 8. How will this affect your motivation to work? Significantly improve it Improve slightly Remain the same Decrease it Significantly decrease it 2. you will be given a fixed amount of money each day. I’m doing this survey to complete my graduation requirements towards my IB Diploma program.000763-010 8. my name is Alma Bawzeer. Do you think an expense account encourages overspending by others? 20 . 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.

) 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. should the company allow full per diem? _____________________________________________________________ _____________________________________________________________ 9. What is your motivation for requesting full per diem? _____________________________________________________________ _____________________________________________________________ 8. in your opinion.000763-010 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. How many and how long where the business assignments you undertook since the beginning of 2011? _____________________________________________________________ 21 . Why. What is your number one concern related to the current reimbursement policy for business travel to Singapore? _____________________________________________________________ _____________________________________________________________ 7.

If you're finding that actual costs incurred far exceed the per diem rates. meals. which is better? To me. then it makes more sense to go with per diem rates. it is not as if there's no substantiation required at all. incidentals and lodging expenses for employees travelling on offices. 22 . the lessened burden is a plus. Travel expenses incurred while on business will be paid for by SATORP if the expenses are reasonable. properly approved and documented. Recordkeeping. Question: In your view. and business purpose of the expense. it comes down to two issues: 1. the lessened burden of the per diem is a plus. It also tends to cut down on the expenditures of employees (validate) 2. transportation and lodging expenses to be claimed and reimbursed based on reasonable and actual expenses.2 Appendix Two Interview (With SATORP’s Financial Representitve) Question: Does SATORP’s business travel expenses policy allow full per diem for business related activities? Answer: Full per diem is the daily amount to cover transportation. The employee must still account for the time. So. incidentals. In my opinion. If you would rather not have to keep up the strictures of an accountable plan. However. 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. if you would rather not have to keep up the strictures of an accountable plan. Cost difference. It also tends to cut down on the expenditures of employees. SATORP policy only allows for meals. place.000763-010 8.

This statement covers reimbursement for air transportation. 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 other miscellaneous expenses. hotel lodging. car rentals. 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 23 . gratuities. 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.000763-010 Business approved travellers who incur such expenses should neither lose nor gain personal funds as a result. telephone calls. Actual reasonable expenses will be reimbursed subject to the limits set forth in company guidelines. tolls and parking.. meals.g.

3 Appendix Three Different Expense Reports 24 .000763-010 8.

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