Cost control and cost tracking rank amongst the top challenges faced by global mobility (GM) teams, according to ECA’s 2017 Global Mobility Organisation survey. An improved awareness of the assignment costs can be a first step towards achieving better control and enables the business to accurately assess their viability. The collation of costs in the form of a cost estimate can help in providing the transparency needed to support the business.
Why undertake a cost estimate?
The purpose of a cost estimate is to enable a company to establish how much a particular assignment will cost. Having a good projection of the overall costs upfront can benefit all parties involved in the assignment – from home and host line managers to GM and the approving parties in the home and host business units. There are a number of ways a cost estimate can be used:
The business unit bearing the assignment expense will have a clear indication of total costs and can incorporate these accordingly in its budget.
Evaluating different scenarios
Due to the increased popularity of alternative assignment types, such as short-term, development, voluntary, commuter and local-plus, many GM teams now prepare cost estimates to compare the costs of using these different options. Some also use the cost estimates to make comparisons between the cost of continued employment in the home location and the assignment. Furthermore, as workforces in emerging markets mature, the potential value added by an expatriate versus that of a local employee is being questioned more frequently. With a stronger focus on bottom-line costs, being able to look at the different scenarios in advance can be a useful tool when seeking management buy-in.
If the nature of a company’s business requires the submission of bids, a cost estimate can be a valuable tool in assessing the project costs to ensure margins are maintained.
Improving management approval workflow
Companies may choose to incorporate the preparation and sign-off of a cost estimate in their standard assignment process. Having such transparency allows decision makers and administrators to have access to the same information, which should reduce the chances of any surprises further down the line.
Designing and maintaining a business-enabling GM programme
Being able to accurately project costs to support the business in their daily operations will help GM managers demonstrate the value of their programme.
What is included in a cost estimate?
Depending on the company culture, each company will have a slightly different approach when preparing the cost estimates. While some companies are satisfied with a general estimate of the recurring costs, others require accurate estimates which take into consideration all costs incurred as a direct result of the assignment. As every company is unique with regards to what they do or do not include in a remuneration package, such differences can have a huge impact on the overall cost of an assignment.
Typically, costs are split into four main areas:
1. Salary costs
Independent of the type of assignment that is being assessed, salary and bonus payments form a large part of the assignment costs and will generally be included. In this section, companies may also take into account any additional allowances that the assignee is entitled to – such as COLA, expatriate allowance and location allowance.
2. Annual expenses
Once the salary level has been calculated the typical expatriate issues need to be considered. Whilst the provision of benefits often varies from one assignment type to another, this component still increases the package significantly. The largest of these expenses is accommodation, a cost that can, in some locations, exceed the amount of the expatriate’s salary. Other annual benefits that may be included are education costs for children, a company car, home leave, medical insurance and annual tax return preparation.
3. One-off expenses
In addition to the annual expenses, most companies also factor in the one-off expenses incurred at the start (and potentially end) of the assignment in order to improve the accuracy of the cost estimate. Some of the more significant costs relate to the physical act of moving the employee and their family to the host location. As with the annual expenses, costs for flights, shipment of personal effects, temporary accommodation, and other similar expenditure, will vary considerably depending on the circumstances of the assignee and the location they are relocating to.
4. Tax and social security
Finally, after all costs have been itemised, the thorny issue of tax and social security needs to be considered. This can amount to a substantial proportion of the overall cost of the assignment. When designing the package and its individual elements it is crucial to determine whether there are any tax efficient ways of delivering a benefit. For example, it can be more tax effective to deliver accommodation in the host location as a benefit-in-kind rather than as a cash allowance. Which elements of the package are taxable will vary depending on host location fiscal law and therefore need to be established separately for each assignment.
What are the benefits of cost estimates?
The preparation of cost estimates can benefit the business in several ways by addressing the major challenges faced by the GM teams.
Improving cost awareness and control
By collating the costs relating to assignments in the form of cost estimates, GM teams are able to clearly communicate an overview of the total costs of the expatriate workforce to all relevant stakeholders. The business will then be able to evaluate different resourcing scenarios to establish which one will add the most value for the costs incurred.
The cost estimate may also highlight where (costly) exceptions are being made, demonstrating the value of adhering to the policy. Alternatively, this may indicate that a review of the policy is needed to ensure it is fit for purpose.
Demonstrating the full costs to the business may lead to the implementation of more stringent approval requirements for assignments, such as the provision of a clear business rationale. Being able to compare various scenarios will also enable the business to select the most cost-efficient assignment type and candidate for the job. Where a choice of the assignment location is an option, a cost estimate will provide clarity on where to base the assignee.
Cost tracking and reporting
Cost estimates provide a solid basis for tracking, reporting and communicating the total assignment and population costs to the relevant stakeholders. This data can assist in allocating the various assignment costs to the appropriate business unit. Reports on the itemised costs of the assignment can help to pinpoint cost savings and potential policy adjustments. Companies who collect the actual costs incurred will also be able to run a comparison against the estimate to inform future budgeting.
Cost estimates are a valuable resource for GM teams looking to increase cost awareness and control by providing a clear picture of the costs involved in running their company’s global mobility programme. The insight into the costs for the expatriate workforce can inform business decision making and strategy.
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ECAEnterprise is the software service chosen by many of the world's multinational companies to run their global mobility programmes. A fully-customisable assignment management solution, it includes a comprehensive salary and cost estimate calculator as part of its core functionality. Get in touch to request a free personal demo.
To assist with your cost estimates, a subscription to ECA data includes Accommodation and Benefits reports detailing the costs of expatriate housing, international schools, company cars and more.
Alternatively, our Consultancy and Advisory team can prepare cost estimates on your behalf using ECA’s latest data.