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://