To begin with, outsourcing makes good sense because it involves the application of the well-known economic principle of comparative advantage. A third-party controller will have a comparative advantage in controlling your expenses simply because its opportunity cost of doing so is less than the opportunity cost of your company if it controls its own expenses. Opportunity cost measures the cost of resources used to produce something by the value of the best alternative those resources might have produced. This means that the time and resources your company spends on controlling expenses costs the value of what may have been produced with those resources otherwise.
The opportunity cost to the service provider, on the other hand, would simply be the value of providing the service to another client, the same, no doubt, as providing the service to your company. If higher value could be obtained by doing something else with its resources, the service provider would be missing out if it didn’t turn to that line of business.
The reality is that your organization loses when it handles its own expense controlling. However, this is a reality that may not be readily apparent, since opportunity costs, which value courses of action not undertaken, are hidden costs. By handling its own expense controlling, your company suffers the loss of productivity and potential that would have added value. But to paraphrase the well-known saying, we won’t miss what we never had.
Theoretically, outsourcing may still make sense even if your company has an absolute advantage in controlling expenses, i.e. if it could handle travel expense management at a lesser actual cost than the third-party vendor. This is because the opportunity cost your firm would experience by handling the issue internally, i.e. the loss in value of what might have been produced, could be greater than the additional actual monetary cost of farming out to a third-party vendor.