Along with the importance of finding the right talent for the right jobs, global relocation managers have one mandate constantly drumming in their ears: cost. According to recent Cartus benchmark research studies, cost is the number one challenge facing global mobility practitioners and their programs, and cost containment is one of the top priorities organizations are most interested in improving. Upfront assignment planning also ranked in the top three.
Fortunately, there’s a way to address both cost concerns and solid assignment planning to arrive at a good balance for companies: through a detailed, well-thought-out international assignment cost projection.
3 Things Managers Need to Know About International Assignment Cost Projections
#1: What is a cost projection? (And what isn’t it?)
A cost projection is a general predictor of future costs: an estimate of how much a multiyear assignment may cost at a given point in time, knowing that actual costs will change over time.
An international assignment cost projection is a high-level projection of international assignment costs based on the client’s specific mobility policies, the employee’s individual assignment criteria, and estimated tax costs by all applicable tax authorities. Costs are gathered for the cost projection, using established data sources, which are projected out over the life of the assignment. Inflation factors are used to project costs over two to five years for a long-term assignment, but these are only rough numbers. Factors such as foreign exchange rates, cost of living index changes, tax law changes, and airline and supplier costs dramatically impact the future value of these cost estimates. These factors mean that a cost projection is primarily a general predictor of future costs: an estimate of what a multiyear assignment may cost.
#2: What’s the value of a cost projection?
So with that understanding, why bother with a cost projection? Simply put, a cost projection is a point-in-time predictor of costs. Arriving at this prediction early in the decision-making process will arm management with potential financial impacts that will allow them to make better assignment-related decisions based on the business opportunity. With this information, less expensive solutions could be considered, such as hiring a local employee or sending an employee on a permanent move. Failing to obtain a cost projection for assignments can easily result in an expenditure of more than half a million dollars a year, which can quickly flip budgets upside down.
#3: What’s the best way to use cost projections?
Once a cost projection has been completed, the projected versus actual costs will certainly vary. This raises the question: What’s the best way to use cost projections?
Cartus recommendation: Projecting and managing costs should be thought of as a two-step process.
Obtain a quick, high-level assignment cost estimate as a basis for a go/no go decision.
Once a decision has been made to go forward with one specific candidate, perform a more detailed cost projection that’s tailored to that candidate’s exact scenario.
When the assignment begins, concentrate on obtaining actual assignment costs based on the individual assignee’s circumstances, for budgeting purposes. If this is done throughout the assignment, it will provide a firm basis for budget planning. This is a much more valuable exercise than trying to fine-tune the upfront cost projection.
If required, the more detailed cost projections can be updated quickly and periodically during the life of the assignment to account for changes such as family size, housing requirements, tax laws, or any other variables that might affect the assignee, as well as preparing budget forecasts using the compensation data that is collected throughout the year.
The initial cost projections help you determine the best estimate and plan of action. Our Quick Cost Projection Tool is a good way to do this. Once the decision has been made, the best use of a mobility professional’s time is to collect actual assignment expense data and focus on preparing representative budgets. This provides the best estimate of the actual assignment expenses to budget and will yield a better return on the time invested in managing the assignment.