Hotel Budgeting

Hotel Budgeting “A guide for planning and controlling processes in hotels” Prepared by Cem Adiguzel Influences of Decision Making Information Activity based costing Product based profitability If, Then? Targets, objectives News Strategic & Operat. Planning Financial Plans & Budget Industry forecasts Plan Report Market share Local trends Channel mix Deviation Analysis Promotion Effectiveness Consolidation Management reports Performance measurement Product performance Customer Analysis Targets of Hotel Managers • Increase hotel occupancy rate • Increase profitability of sales • Cost control – Owners of revenues and expenses – Relating expenses and revenues Benefits of Budget System • Focus on future and preparation for possible outcomes • Enhanced communication • Information for different parties • Benchmark for performance control • Achievement oriented organizational behavior (combined with compensation system) Industrial Comparisons • Uniform System of Accounts for Lodging Industry – New York City Hotel Association – First published in 1926 – 9th revision • Based on – Service standards – Region and type of property Management Functions and Budget Planning Organizing Leading Controlling Feedback Reasons of Failure • • • • • • • • Top management support Organizational conformity Responsibility accounting Wrong internal or external information Time schedules Flexibility Evaluation of actual results Reflecting evaluation results back to business Before starting... • • • • • Current year’s activity figures General economic and industry conditions Competitive environment Prices (rates) being applied Industry forecasts and trends Structure of the Multi-Property Operation • Summary profit & loss schedule – Revenues • • • • • • • • Rooms F&B Outlet rents Laundry Cost of Sales Departmental Expenses Payroll and related expenses Undistributed expenses – Expenses – Cumulative profit & loss figures Structure of the Multi-Property Operation Ratios – Operational ratios • • • • • • • • • Occupancy rate Double occupancy rate Average stay Average room rate RevPar F&B spending Cost of sales ratio for F&B outlets Payroll and related expenses ratio Total cost per occupied room – Profitability ratios Structure of the Multi-Property Operation • Single Property profit & loss schedule • Departmental Budgets Summary Profit & Loss Schedules Property 1 Laundry F&B Property 2 Laundry F&B Rooms Property 3 Laundry F&B Rooms Rooms Cost Drivers and Department Budgets Housekeeping department Departmental Expenses Computers & computer supplies China/glass Cleaning Material # of rooms sold # of rooms sold # of guests $1.00 $0.50 $0.50 Cost Driver Budgeted Unit Cost Amenities Flowers & decoration Customer supplies Room supplies Laundry # of guests # of rooms sold # of guests # of rooms sold # of guests $1.00 $2.00 $0.50 $2.00 $1.00 Linen Printed materials and office supplies Total Departmental Expenses # of guests # of rooms sold $0.20 $0.30 Budgeting Mechanics Identify Market Segments Corporate base information Enter Sales Estimation Complete Departmental Budgets Collect & Merge Final Approval Collect & Merge Property Budgets Final Corporate Approval Parameter 3 Room Type Option 3,1 – Single Room Option 3,2 – Double Room Option 3,3 – Suite Parameter 1 Reservation Source Option 1,1 - Local Travel Agency Option 1,2 - International Travel Agency Option 1,3 – Internet, Parameter 2 Price Category Option 2,1 – Rack Rate Option 2,2 – Corporate Rate Option 2,3 - CIR 1 Option 2,4 - CIR 2 Framework for Successful Budgeting Budgeting Tools • Spreadsheets – For small sized hotels with minimum outlets • Specialized budgeting software – Large scale hotels with more than 200 rooms – Hotel Chains For more information • Download complete research – http://www32.brinkster.com/unaweb/hotelbudgeting.doc • Hotel budgeting software – http://www.servushotel.com • Uniform System of Accounts – http://