Measuring the return on investment for international assignments is notoriously difficult, but obtaining cost estimates before they begin can help companies accomplish this task.
This is because there are many indirect expenses (e.g., housing, education, and temporary living) that are not necessarily accounted for when determining the assignment’s financial impact. A cost estimate will help identify these and give companies a clearer picture of the assignment’s true cost.
To ensure accuracy, cost estimates should be prepared for each year on assignment. They should be compared to the actual costs at year end to determine if budgets need to be adjusted (due to changes in tax laws or family size, for instance), or to provide an additional return on investment financial analysis. This can determine if the assignment should continue, if the assignee should be localized, or if a local national should be brought in at a possible lesser expense.
Items included in a cost estimate should include a cost of living analysis, which should be obtained from a valid source in order to support the calculation. When a cost of living calculation is prepared, supporting documentation and possibly training should also be provided to the business leaders so that they understand why cost of living allowances should be provided to employees on assignment.
The most critical component of a cost estimate is the tax calculation, as the tax the company will incur can be the assignment’s most expensive component. This information should also be considered when a company is comparing two individuals from two different locations, as there may be a tax savings if someone is coming from a low tax country or can break residency in the home country when going on assignment.
Obtaining this information – either as part of an assignment’s pre-decision and approval process, or at least pre departure — can not only help measure ROI, but will also reduce the likelihood of unwelcome surprises down the road.