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INTERNATIONAL BACCALAUREATE

Business and Management Internal AssessmentShould SATORPauthorize per-diem for employees on short-term assignments toSingapore?Student Name: Alma Bawzeer Candidate Number: 000736-010Subject: 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 Managementteacher, for his patience, dedication and help throughout theproject. Also, I would like to thank Mr AlOtaibi for his time andhelp with the interviews and for answering all the doubts I hadabout the situation. Moreover, I would like to thank all theemployees of SATORP that were interviewed and surveyed throughoutthis research, shared their expense reports and their valuableinput.

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TABLE OF CONTENTSExecutive Summary ..3 1.0 Introduction ..7 2.0Methodology 8 3.0 Main Results and Findings ..9 3.1 FinancialFindings .9 3.2 Survey Findings 10 4.0 Analysis and Discussion ofResults .14 5.0 Evaluation 16 6.0 Conclusion and Recommendations 187.0 WorksCited........................................................................................................................19 8.0 Appendences .20 8.1Appendix One .20 8.2 Appendix Two ...218.3 Appendix Three 23

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EXECUTIVE SUMMARY

SATORP is a global oil company, embarking on a new refineryproject. To properly monitor progress, its employees are requiredto go on business trips to different countries. SATORP usuallyreimburses its employees the actual expenses that they incur intheir travels but recently, the HR manager has suggested usingper-diem rates. The purpose of this report is to determine whetherSATORP should authorize per-diem for employees on shorttermassignments in Singapore. This research was carried out byconducting primary research, such as interviews with the HR managerto assess the situation and see what were the benefits anddrawbacks of introducing a per diem as a new business travelpolicy. Furthermore, surveys were conducted with employees thatusually go on business trips, to have their opinion about thematter 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 calculatefinancial analysis of the situation. By the end of this research,it is highly recommended that SATORP implements the changes to perdiem, where not only will it motivate the employees, but alsoresult in large cost savings for the firm.

Word Count: 198

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RESEARCH PROPOSAL

Research Question: Should SATORP authorize per-diem foremployees on short-term assignments in Singapore? Theoreticalframework: Rationale for study:

SATORP is a global company and to properly monitor progress, itsemployees are required to go on business trips to differentcountries. SATORP usually reimburses its employees the actualexpenses that they incur in their travels but recently, the HRmanager has suggested using per-diem rates. The purpose of thisreport is to determine whether that will be beneficial for thecompany. There is a dearth of research on the effects of per-diemrate on a company and my research will contribute to theliterature. Also, as SATORP is a global company, it has to send itsemployees on overseas business trips very often and even small costsavings can accumulate and be significant. Areas of syllabus to becovered:

1. SWOT analysis - To analyse the general position of thecompany. 2. Maslows hierarchy of needs - To analyse the effect onmotivation of the new policy. 3. Financial analysis - To determinethe more profitable of the expense report or the perdiem option. 4.Lewins Force field analysis To discuss and evaluate the variousdriving and restraining forces for the decision.

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Methodology: Primary research Interview the human resourcesmanager, Mr AlOtaibi and a questionnaire for employees to findtheir opinion about the proposed change. Secondary research Thefinancial statements of the company and current academic opinionabout the issue from research journals, books and other sourceswill be discussed to predict the effect of change on the company.Anticipated possible difficulties and solutions: Anticipatedproblems Anticipated solutions

Difficult to get an interview due to busy Use IT and set updates in advance schedules Global company so sample size is Try togain data from secondary resources to complement primaryresearch.

proportionally small

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

st th Interviewing the finance director and 1 10 May

collecting secondary data from the organization. Interviewingand handing

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

Writing 1st Draft

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

Editing the essay.

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Submission of draft.

22nd September

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Submitted.

Revision of first draft.

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

Final draft due.

Word Count (Research proposal): 300

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1.0 INTRODUCTION

SATORP1 is a newly established joint venture company between theFrench TOTAL and SAUDI ARAMCO oil companies to build and operate anoil refinery in Jubail, Saudi Arabia. SATORPs Jubail projectemploys thirteen international contractors to build the refinery.The project spans a period of two years and many employees arerequired to travel to contractors main offices in Europe and FarEast to review the design and the progress. SATORPs travel policyonly allows employees to claim actual expenses of their businesstrips for the company to pay. Per-diem is the specific amount ofmoney an organization provides its employees on business trips tospend per day (Wikipedia.com), and gives them the advantage ofreceiving the remaining of the per diem if not fully used that day.SATORPs employees have repeatedly expressed concerns amongthemselves about the current business travel policy as they arelosing money during business assignments and want the company toauthorize per-diem payments as an option. This has therefore led meto the following research question: Should SATORP authorizeper-diem for employees on short-term assignments in Singapore?

1

SATORP: Saudi Aramco Total Oil Refining Petrochemicalcompany.

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2.0 METHODOLOGY

To determine whether SATORP should proceed with per-diempayments to cover their employees expenses on their business trips,primary research was undertaken, as a survey was conducted in thecompany premises and the employees were informed that theirresponses will be kept confidential. Furthermore, the interviewwith Mr AlOtaibi was conducted at three different timings, once inperson, and twice over Skype. The questions were sent in advance tothe 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, theexpense reports 2 of the employees on previous trips were analysed.The data is given in Table 1 below:Per Diem Variance Amountrequired 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 6019156.31 7408 -2956.23 57620 35097.83

Actual Expense 8851.06 9738.44 8599.25 12902.64 4279.21 3864.0922121.33 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 80000100000 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 claimedby the employees. The per diem amount is calculated based on ratesgiven by US department of state. 3 If the company had a per diempolicy rather than an expense account policy, the company wouldhave saved, on average, 37.85%. This is a huge cost savingespecially given the fact that this is a regular expense for thecompany.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 wereconducted with the employees of SATORP, which can be found in theappendences.

Effect on Motivation to work0% 0%

30%

Significantly improve motivation Improve motivation 50% Nochange in Motivation Demotivate Significantly demmotivate

20%

Figure 1: Effect of per diem on motivation to work

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

4

Fig 1.

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

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

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

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Effect of expense account on overall spending4.5 4 3.5 3 2.5 21.5 1 0.5 0

Effect on others of expense account on overall spending7 6 5 4 32 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 anexpense account encourages significant overspending (30%) oroverspending (40%) by them. 60% also believe that it encouragessignificant over-spending or overspending (30%) by others. Thisshows that the general consensus is that there is significantover-spending due to the expense policy. This makes sense as withno limits over how much the employees can spend, the employees aremore likely to engage in over-spending.

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Will per diem effect ability to do business?Significantly worsenthe ability to do business Worsen the ability to do business Noeffect Will improve ability to do business Will significantlyimprove 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 willlimit their ability to do business. This is shown in the figure 3.Many employees may choose to save the per-diem amount they receiveand hence may end up cutting corners which will hurt the business.For example, they may refuse to take a client out for dinner evenif it may help them build longterm business relationship. They mayalso choose to travel in cheaper cabs and stay in cheap hotelswhich may affect the image of the company in front of importantclients.

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4.0 ANALYSIS AND DISCUSSION OF RESULTS

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

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

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

Opportunities High demand for petrochemical biproducts, hencethey 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 avery strong financial position. It is able to attract talent fromall over the world and is able to exploit competitive advantage ofcountries across the globe due to its multi-national nature.However, their main weakness is shortage of local talent. Due toits vast operations, they are operating in countries where localtalent is not enough to meet all their needs. Some of the locationsare also very remote and this discourages people from joining. Thecompany makes up for this by keeping people connected throughtechnology and also by regularly flying experts around differentlocations. It is the reason why this research question is so14

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important, as even though the company needs to keep costs at aminimum, it must also ensure that enough talented people areavailable to solve problems worldwide. Oil refining is anunpredictable business as the oil prices keeps fluctuating but inrecent months; the high demand for petro-chemical bi-products isdriving business forward. As the company has the highest oilreserves in the world so the only serious problem is the lack oftalent.

Maslows hierarchy of needs: A per-diem allowance will allow theworkers to spend fewer amounts than they normally would, and savethe rest on themselves. This may increase in motivation but alsomay make them less likely to spend money, even then it would bebeneficial from a business point of view, where they may bereluctant take out clients. Most employees seem to think that theeffect on motivation will not be significant. This is supported byour survey finding where majority (50%) agreed that it willactually improve motivation.Figure 4 : Maslow's hierarchy of needstheory pyramid.

Maslows hierarchy of needs can help us analyse the effect ofmotivation. Maslows theory focuses on the psychological needs ofworkers, as he believed that people are motivated by factors otherthan money. These psychological needs, as seen in Figure 4, must bemet in order to motivate the employee. Maslows research presentedfive levels of needs, called the hierarchy of needs. Where workerswould need to be satisfied with all lower level needs being metbefore they could progress to higher level needs (Hoang 272). Mostof the workers on short-term assignments are consultants or seniormanagers; hence it can be presumed that their lower order needs aresatisfied. They should be

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(Video) New Research Paper Topics l New Research Topics l Research Paper Topics l New Research Topics Ideas

primarily motivated by the challenge of the job and theirself-esteem for doing the work. It is unlikely they will facefinancial problems. A per-diem allowance hence should have noeffect on the motivation of the workers. Still, the per-diemallowance should be enough to cover their basic physiological needssuch as food and lodgings. As the average amount required (as perthe survey: $400) to cover living expenses is less than the amountcompany is planning to pay (as per recommendation of US departmentof state: $463), it is unlikely employees will face problems.

5.0 EVALUATION The force field analysis can help us analyse thedriving and restraining forces for this decision. The weightagesare assigned in consultation with Mr AlOtaibi who has a goodexperience with the employees of the company and hence is in abetter position to analyse the decision.Weightage 5 Driving forcesMakes employees responsible for controlling their expenses. Allowsemployee more freedom in selecting accommodation and services ontheir business trip. Simplifies the process of producing expensereports, hence spending less time on them. Total Restraining forcesEmployee losing money due to other expenses incurred which are notcovered by the company. May hinder ability of the employees to dobusiness. Weightage 5

2

5

4

11

Total

10

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

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The weightage for each force was decided in consultation with MrAlOtaibi as he is in a good position to determine the importance ofeach factor due to his experience with the firm. The change willmake employees responsible for controlling their expenses and hencewill encourage them to conserve costs. This is a very importantfactor as it can have a direct impact on the bottom line. It willalso allow employees more freedom in selecting their accommodationand dining. Employees who want to stay in more expensive hotelsthan the company allows can pay the extra amount out of pocketwhile employees who are content with cheaper hotels may save money.This may motivate the employees but still is not considered animportant factor as the employees are there to do business at theend of the day and some discomfort is expected. Changing the policyalso allows the employees to spend without worrying about expensereports. Under the current policy, they have to keep each and everyreceipt which is troublesome and time consuming. The financedepartment also has to verify and cross check everything. Thisresult in a huge wastage of time and a policy change will reducethe cost in terms of time wasted significantly. However, a policychange means that employees will have to fit in their expenditurewithin the budget allocated and hence they are liable to losemoney. This may make them more conservative in their spendinghabits and hence may lead them to hold back spending money evenwhere it can benefit the company. Still, if the company implementsare policy where extra-ordinary expenses can be claimed, thisproblem can be avoided.

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6.0 CONCLUSION AND RECOMMENDATIONS

As can be seen, the driving forces outweigh the restrainingforces hence the company should implement the change. It will notonly improve motivation but will also result in large cost savingsfor the firm. Employees will be given more freedom; they will beable to decide whether to save money or to spend a little extra fora more comfortable stay. It will also make them responsible fortheir own finances and hence encourage responsible behaviour. Tocounter any negative effect of the policy, the company canimplement an expense reimbursement policy for extra-ordinaryexpenses for example doing a favour for a client. The company canalso continuously monitor the situation and perhaps introduce thepolicy in several stages to ensure the change is actuallybeneficial for the company. The executives should also be givensome guidance on budgeting to help them monitor their finances.Limitations and future recommendations: The research usesself-reported data that may be biased and inaccurate. Many of thefinding depend on the survey and interview from the manager, wherethey may have an incentive to choose the option that will end upbenefiting them financially even if doesnt benefit the company.On-going research is required to ensure that implementation of theper-diem policy doesnt result in an increase in expenses for thecompany. The company should research whether a hybrid of the twomethods will be more suitable. For example, a fixed amount can begiven for lodging and meals while an expense approach can be takenfor incidentals and other expenses. This will limit thedisadvantages 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 andPetrochemical Co. Web. 12 June 2011. . "Maslow's Hierarchy of Needs- Motivation Theory." Abraham Maslow - Father of Modern ManagementPsychology. Web. 07 Oct. 2011. . "Per Diem." Wikipedia, the FreeEncyclopedia. Web. 02 July 2011. . U.S. Department of State |Welcome to Office of Allowances. Web. 07 Aug. 2011. U.S. Departmentof State | Welcome to Office of Allowances. Web. 08 Aug. 2011. U.S.Department of State | Welcome to Office of Allowances. Web. 08 Aug.2011. 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 towardsmy IB Diploma program. Your responses will be kept anonymous andwill only be shared in the aggregate, so please try to be as honestas possible. The company is thinking about of introducing aper-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 improveit Improve slightly Remain the same Decrease it Significantlydecrease it

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

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

Significant overspending

Slight overspending

No change

Underspending

Significant underspending

4. Do you think an expense account encourages overspending byothers?

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Significant overspending

Slight overspending

(Video) Research Topic Ideas l Research Areas l Latest Research Topics l Current Research Topics

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 myability to do business Will limit my ability to do business Nochange Will improve Will my ability to do business significantlyimprove my ability to do business

6. What is your number one concern related to the currentreimbursement 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 youundertook since the beginning of 2011?_____________________________________________________________

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8.2 Appendix Two Interview (With SATORPs FinancialRepresentitve) Question: Does SATORPs business travel expensespolicy 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 onoffices. SATORP policy only allows for meals, incidentals,transportation and lodging expenses to be claimed and reimbursedbased on reasonable and actual expenses.

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

1. Recordkeeping. If you would rather not have to keep up thestrictures 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 costsincurred far exceed the per diem rates, then it makes more sense togo with per diem rates.

Travel expenses incurred while on business will be paid for bySATORP if the expenses are reasonable, properly approved anddocumented.

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Business approved travellers who incur such expenses shouldneither lose nor gain personal funds as a result. This statementcovers reimbursement for air transportation, car rentals, hotellodging, meals, gratuities, tolls and parking, telephone calls, andother miscellaneous expenses.

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

Benefits of actual lodging and meal expenses in lieu of perdiem:

*

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

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

*

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

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

*

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

increased because of a special event or function and affordablelodging is not available within a reasonable commuting distance orthe costs of commuting consume the savings from occupying lessexpensive lodging

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8.3 Appendix Three Different Expense Reports

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