Hotel Budgeting

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					            Hotel Budgeting
“A guide for planning and controlling processes in hotels”
                Prepared by Cem Adiguzel
       Influences of Decision Making
                           Information
  Activity based costing
                                     Strategic & Operat. Planning
  Product based profitability
                                     Financial Plans & Budget
  If, Then?
                                     Industry forecasts
  Targets, objectives
News




                                                              Plan
                            Report
Market share                         Consolidation
Local trends                         Management reports
Channel mix                          Performance measurement
Deviation Analysis                   Product performance
Promotion Effectiveness              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
  – Expenses
     •   Cost of Sales
     •   Departmental Expenses
     •   Payroll and related expenses
     •   Undistributed 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                   Property 2         Property 3
 Laundry




                               Laundry




                                                Laundry
           Rooms




                              Rooms




                                                          Rooms
  F&B




                                F&B




                                                 F&B
        Cost Drivers and Department
                  Budgets
Housekeeping department                 Cost Driver       Budgeted Unit Cost
Departmental Expenses
Computers & computer supplies           # of rooms sold                  $1.00
China/glass                             # of rooms sold                  $0.50
Cleaning Material                       # of guests                      $0.50
Amenities                               # of guests                      $1.00
Flowers & decoration                    # of rooms sold                  $2.00
Customer supplies                       # of guests                      $0.50
Room supplies                           # of rooms sold                  $2.00
Laundry                                 # of guests                      $1.00
Linen                                   # of guests                      $0.20
Printed materials and office supplies   # of rooms sold                  $0.30
Total Departmental Expenses
                 Budgeting Mechanics
                                   Parameter 1                                Parameter 2
Identify Market Segments           Reservation Source                         Price Category
                                   Option 1,1 - Local Travel Agency           Option 2,1 – Rack Rate
                                   Option 1,2 - International Travel          Option 2,2 – Corporate
Corporate base information         Agency                                     Rate
                                   Option 1,3 – Internet,                     Option 2,3 - CIR 1
                                                                              Option 2,4 - CIR 2

Enter Sales Estimation
                                                        Parameter 3
Complete Departmental Budgets                           Room Type
                                                        Option 3,1 – Single Room
                                                        Option 3,2 – Double Room
                                                        Option 3,3 – Suite
Collect & Merge

Final Approval

Collect & Merge Property Budgets

Final Corporate Approval
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://