ROOMS DIVISION BUDGETING

ROOMS REVENUE

1.       WHAT IS A BUDGET ?

A budget is a formalized projection of business activity for a set period in the future, quantified in terms of trading currency and associated figures.

2.       WHY BUDGET ?

a.       It forces a management to evaluate what has happened in the past

b.       It leads a management to investigate what is likely to happen in the future

c.        It establishes strong trends and weak trends

d.       It allows for a planning of cash flow, investment and operational timing

e.       It allows management to measure its performance in an accurately quantitative way, day by day, month, by month.

f.         It signals periods of dangerously low or acutely high turnover, both of which can have a de-stabilising effect if not foreseen.

g.       It allows for other operational actions to be reviewed or implemented such as staffing, stock and investment levels, marketing initiatives and promotional plans.

h.        

3.       A TWO-WAY STRETCH

a.       WHAT YOUR SUPERIORS EXPECT

b.       WHAT YOU SEE WILL PROBABLY HAPPEN

4.       THE ROOMS DIVISION BUDGET

a.       INCOMING REVENUES

                                                                  i.      Money and average rate

                                                                 ii.      Occupancy

                                                               iii.      Market and guest characteristics

b.       OUTGOING COSTS/EXPENSES

                                                                  i.      Operating costs (administration)

                                                                 ii.      Staffing

                                                               iii.      Investments

5.       The importance of the ROOMS DIVISION. Budget

a.       IT REPRESENTS THE SINGLE LARGEST SOURCE OF INCOME FOR THE HOTEL AND CONSEQUENTLY IS IMPORTANT TO BE AS ACCURATE AS POSSIBLE

b.       IT IS THE START POINT UPON WHICH ALL OTHER OPERATIONAL DEPARTMENTS BASE THEIR RESPECTIVE BUDGETS

6.       WHERE TO START

a.       GATHER INFORMATION

                                                                  i.      HISTORICAL DATA

1.       What happened last year? And the years before?

                                                                 ii.      STRATEGIC INPUT

1.       Targets from above constraints and goals

                                                               iii.      LOCAL ACTIVITY

1.       What’s happening out there?

                                                               iv.      INTERNAL ACTIVITY

1.       What’s happening in here?

                                                                 v.      MARKET INTELLIGENCE

1.       What does your customer want

                                                               vi.      MARKET ANALYSIS

1.       What is our market?

2.       Whom can we expect?

3.       What will they spend?

4.       Who are our competitors? What are the trends

                                                              vii.      CONCRETE DATA

1.       What do we know will happen?

7.       Building a market model

a.       DIFFERENT MARKET SEGMENTS WILL YIELD DIFFERENT RESULTS

·         Average rate

·         Demand pattern

·         Length of stay

·         Demand elasticity

·         Price sensitivity

·         Ancillary revenue potential

·         Product expectations……………& Fidelity

b.       competition analysis model

§  FAIR SHARE

§  ROOM NIGHTS

§  COMPETITIVE INDEX

§  MARKET SHARE

§  PENETRATION FACTOR

8.       QUALIFY THE MODEL

ANALYSE THE TRENDS AND FIGURES. KEEP ASKING:

Why? When?, What? Who?, Where? What if? Where from? How? How much? etc…..

You are about to compile your annual budget	By when is it to be submitted?
Your hotel has 200 rooms and is a 4 star property.	How many hotels are in this market category?
Your hotel is situated on the outskirts of a large industrial town approximately equidistant from the local national airport, city congress centre and the city’s business centre	How many visitors arrive at the airport and how many of those stay with you? What is the Congress Centre’s activity schedule?
Last year you enjoyed an occupancy of 52% and an average rate of $195 for corporate and $295 for transient.  The guest mix is corporate – 40%  and transies – 60%	Will this increase or decrease next year? Is this a good Av. rate? What are the Av rates of your competitors? Will the market take a price hike?
You have 3 restaurants and 2 bars, additionally a discotheque open 5 evenings a week There is a small Health Centre, gymnasium and small pool	Are there packages which encourage spin-off trade in these facilities? How much revenue is earned from the health centre? What is the in-house and out-house ratio of use?
Conference & Banqueting comprises 2 ballrooms and 5 meeting rooms. There is a business centre for guests on the newly created business floor	Does the price structure of C&B encourage the use of rooms? Is the business floor used fully? Does it have the correct facilities? Does it make or cost money?
The hotel is part of a referral system and benefits from a Central Reservation System. Web Reservations of just been introduced through the CRS	How many reservations come through the CRS? It is ‘real-time’ enabled (auto conversion)? Is Revenue Management used?

9.         DATA QUESTIONS

REPORTS:       Night Clerks       Arrivals/Departures       Long staying guests       Reservations taken       Group activity       Source of business       Occupancy forecasts	How long do guests stay? Does it vary with season? What are these groups’ characteristics? What is the S.O.B.? What is the pick-up and wash-down?
Over the last 3 years the demand has increased incrementally.       This was due to burgeoning industries, increased air transport and the congress centre	Will demand increase continue?       Same rate or greater?       Which is the increasing segment?       What are the airline slip patterns?       Are there air delays?       Who handles Congress Centre bookings?       Any new airlines coming to the airport?

10.    BUDGETING FOR COSTS

a.       FIXED COSTS

·   Ground Rent

·   Rates

·   Rental of services (telecommunications)

·   Administration

·   Indirect Costs (Undistributed)

b.       VARIABLE COSTS

·   Casual staffing

·   Room amenities

·   Laundering

·   Cleaning materials

·   Operational supplies

c.        PARTIALLY VARIABLE

§ Full time staffing

§ Energy

11.    Room Division Input

a.       Projected staffing levels

b.       Expected salaries, bonuses

c.        Changes to membership subscriptions (satellite, GDS’s, commissions etc.)

d.       Changes in supplier

e.       Changes in procedures (outsourcing)

f.         Minor capital purchases

12.    CALCULATING COSTS

a.       Usually done on a % basis for variable costs

b.       Be aware of the costs this holds:

                                                                  i.      significant changes in volume needing:

1.       MORE/LESS STAFF

2.       EXTRA/REDUCED SERVICES

3.       NEW EQUIPMENT/NEW POSITIONS

4.       NEW PROCEDURES/TRAINING

5.       PURCHASE VOLUMES CHANGING

CALCULATING ROOM RATES USING THE HUBBART FORMULA

1.         Calculate desired profit:

DESIRED RATE OF RETURN X OWNER’S INVESTMENT

2.         Calculate pre-tax profits:

DESIRED PROFIT

1 - HOTELS TAX RATE

3.         Calculate fixed charges and management fees:

Estimated:

DEPRECIATION

+          INTEREST EXPENSE

+          PROPERTY TAXES

+          INSURANCE

+          AMORTIZATION

+          BUILDING MORTGAGE

+          LAND

+          RENT

+          MANAGEMENT FEES

4.         Calculate undistributed operating expenses:

Estimated:

ADMINISTRATIVE AND GENERAL

+          DATA PROCESSING

+          HUMAN RESOURCES

+          TRANSPORTATION

+          MARKETING

+          PROPERTY OPERATION

+          MAINTENANCE

+          ENERGY COSTS

5.         Estimate non-room operated department profit / loss :

FOOD & BEVERAGE

+          TELEPHONE...ETC.

6.         Calculate required rooms department income:

STEP  2 + STEP 3 + STEP 4 + STEP 5

7.         Determine rooms department revenue

STEP 6

+          ROOMS PAYROLL & RELATED EXPENSES

+          OTHER ROOMS DIRECT OPERATING EXPENSES

8.         Calculate average room rate

STEP 7

EXPECTED ROOMS SOLD