TIM 314 Final Exam

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Describe the front office audit

• Front office audit: Front office must regularly review and verify the accuracy and completeness of guest and non-guest accounting records
• Front office audit: daily comparison of guest account transactions recorded in the PMS or at the front desk against revenue center transactions
• Guarantees the accuracy, reliability, and thoroughness of FO accounting
• May include active non-guest accounts
• Results in balanced guest and non-guest accounts, accurate account statements, appropriate account credit monitoring, and timely reports to management
• Increases likelihood of correct guest/non-guest settlement
• Night audit: performed during late evening hours
• Minimal interruption
• Hotel revenue outlets are closed
• Accounting day/hotel day: front office audit closes the books on one hotel and, when completed, initializes the financial records for the next day
• May be called a system update: PMs files are electronically updated on a continual basis
• Manual work now performed automatically through technology
• Much of FO audit is creating and distributing system reports, which can be done at any time

What are the functions of front office audit?

• Main purpose: verify the accuracy and completeness of guest and non-guest accounts against revenue center transaction reports
• Concerned with:
• Verifying posted entries to guest and non-guest accounts
• Balancing all front office accounts
• Resolving room status and rate discrepancies
• Reviewing guest credit transactions against established limits
• Generating operational and managerial reports
• Front office audit is concerned only with FO activities
• Audit of other revenue outlets is responsibility of accounting department and occurs day after these outlets close
• In some small hotels, FO auditor may perform several parts of a complete audit because there are fewer outlets and the transactions are less complex

What does the front office auditor do?

• FO Audit requires attention to accounting detail, procedural controls, and guest credit restrictions and should be familiar with nature of transactions
• FO auditor tracks room revenues, occupancy percentages, and other statistics
• Uses PMS to prepare daily summary of cash, check, credit card, debit card, gift card, and other front desk activities
• Reflects financial performance for the day
• Summarizes and reports results of operations to FO management
• Accounting may rely on FO audit data to prepare statistical analyses

What is the end of day?

• FO auditor compiles, balances, and reviews transactions posted to guest ledger accounts
• End of day: arbitrary stopping point for the business day
• Used so audit can be considered complete through specific, consistent point in time
• Closing time of hotel revenue outlets usually determines end of day (or majority if they have 24-hour services)
• Casino hotels usually close books around 4 AM or later, as determined by management
• Business day ends when FO audit begins
• Period from 1:30 AM until the audit is completed is referred to as audit work time
• Transactions requiring FO accounting attention during this time are not posted until the end-of-day audit is completed
• Transactions during this time are considered part of next business day

How do front office auditor cross reference documents?

• Hotel departments may generate paperwork to document transaction
• Revenue center classifies and records each transaction type (cash, charge, or paid-out) and monetary value
• If not interfaced with FO system, may use a voucher to communicate transactional information
• FO review automated postings to ensure its posted to the appropriate folio
• For internal control purposes, accounting system should provide independent supporting documentation to verify each transaction
• Bucket check: Check room rate postings on guest folios against housekeeping's report of occupied room and the front desk registration file
• Ensures that accurate rates have been posted for all occupied rooms and reduce the occupancy errors caused by agents not properly checking in and out.
• Front office auditor relies on transactional documentation to prove that proper front office accounting procedures have been followed

How can you ensure account integrity?

• Internal control techniques include cash control and separation of duties
• Duties are separated to ensure no single individual is wholly responsible for accounting for all phases of a transaction
• Different FO staff must post, verify, and collect sales transactions
• Allows staff to detect mistakes or embezzlement
• Duties should be split among agent (posting), auditor (verification), and cashier (settlement)
• Auditor should be the only person to initiate automatic posting of room rates and room tax charges to folio
• FO auditor ensures FO receives payment for goods and services rendered
• Establishes account integrity by cross-referencing account postings with departmental source documentation
• Audit process is complete when totals for guest, non-guest, and departmental accounts are in-balance
• Out of balance exists when charges and credits posted to account do not match charges and credits posted departmental revenue sources
• May require thorough review of all account transactions, statements, vouchers, support documents, and departmental source documentation
• Out-of-balance positions are rare with a fully automated system

What are daily and supplemental transcripts?

• Daily transcript: detailed report of guest accounts that summarizes and updates those guest accounts that had transactional activity on that particular day
• Guests can check out at any time, so daily transcript must be processed with care
• Typically detailed by revenue center, transaction type, and transaction total
• Supplemental transcript: track the day's transactional activity for non-guest accounts
• Together, these transcripts detail all transactions occurring on a single hotel day
• Basis for a consolidated report of FO accounting transactions from which revenue center totals can be checked
• Daily and supplemental transcripts are simply electronic spreadsheets designed to eliminate posting discrepancies
• Identifies out-of-balance figures in advance of a detailed review

What are the benefits of front office automation?

• Front office modules of a PMS can be interfaced with POS equipment, call accounting systems, in-room entertainment devices for quick, accurate, and automatic postings to electronic folios
• Several audit functions can be performed continuously throughout the guest cycle
• Automated systems enable FO auditor to spend more time auditing and analyzing and less time posting
• Monitoring account balances and verifying account postings compare guest ledger and non-guest ledger audit data with the FO daily report for balancing
• When out-of-balance, there is usually an internal computational problem or an unusual data-processing error
• Automated system retains previous balance for guest and non-guest accounts, along with appropriate transactional details
• Provide information in response to system-generated directives or commands
• FO system performs numerous mathematical verifications to ensure postings are correct
• Most FO accounting systems are capable of tracking each posting by time, shift, employee, folio number, and revenue center
• PMS organize, compile, and print records faster
• Process a large quantity of data, perform numerous computations, and generate accurate account totals
• System updates are run daily to establish an audited end of day and allow for report production, file reorganization, and system maintenance
• FO accounting systems offer rapid access to information, enabling management to knowledgeably plan, organize, and direct operations
• Reports detailing revenue data, occupancy statistics, advance deposits, arrivals, no-shows, room status can be generated on demand or regularly

What are the steps of the front office process?

• FO audit focuses on two areas:
1. Discovery and correction of FO accounting errors
2. Creation of accounting and management report
• Audit ensures integrity of accounts through cross-referencing process
• Accounts compared with data entries and source documents
• Discrepancies found must be corrected
• Provides important operating information for management reports: ADR, RevPAR, occupancy percentage, usage of package plans and other marketing programs, and number of group rooms and comp rooms occupied
• Degree of scrutiny required depends on frequency of errors and volume of transactions to be reviewed
• Quality of data entry work
• Size and complexity of hotel (large hotels require closer account scrutiny due to high volume of transactions)
• Following steps are common to the sequence of a FO audit:
1. Complete outstanding postings
2. Reconcile room status discrepancies
3. Verify room rates
4. Balance all departmental accounts
5. Verify no-show reservations
6. Post room rates and taxes
7. Prepare reports
8. Prepare cash receipts for deposit
9. Perform system back-up routine
10. Distribute reports
• In an automated system, several of these steps may be condensed or combined

1. Complete Outstanding Postings
• One of the primary functions of audit is to ensure that all transactions affecting accounts have been posted to appropriate folios
• Important that system posts and accounts for transactions as they occur
• Posting errors can lead to discrepancies and delays at check out
• Auditor must confirm that all transactions have been posted before starting the audit routine
• Must wait until all outlets (including banquets) are closed
• Incomplete postings result in errors in account balancing and complicate summary reporting
• Verify that all vouchers for revenue center transactions are posted
• Ensure that all outlet charges have been posted by generating printed posting reports from the interfaced systems and comparing them with the totals reported by the FO accounting system
• If not the same, auditor should compare transactions between systems to identify the transactions that have been omitted or improperly posted

2. Reconcile Room Status Discrepancies
• Room status discrepancies must be resolved in a timely manner
• Imbalances can lead to lost business and cause confusion in the front office
• Errors in room status can lead to lost and uncollectible room revenues and omissions in account posting
• FO must maintain current and accurate room status information to determine the number and types of rooms that remain available for sale
• Housekeeping records status of all rooms as they are served
• Auditor must review FO and housekeeping reports to reconcile and finalize the occupancy status of all rooms for a given night
• If housekeeping report indicates room is vacant, but FO believes it is occupied, the auditor should search for an active electronic folio and registration card.
• If folio exists and has a current outstanding balance, there are several possibilities:
• Guest may have departed but forgotten to check out
• A guest may be a skipper who left with no intention of checking out
• A front desk agent or cashier may not have properly closed the folio at check-out
• A guest may have used self-check-out but the system interface failed.
• After verifying the guest has left, auditor should process check-out and set folio aside for FO management review and follow-up
• If folio has been settled, FO room status system should be corrected
• Auditor should verify guest folio against housekeeping reports and room status reports to ensure they are consistent and in balance
• Few room status discrepancies should occur in an automated system

3. Verify Room Rates
• Done at the same time as reconciling the room status
• Auditor reviews a system-generated room report
• Provides a means for analyzing room revenues, since it shows the rack rate (price) for each room and actual rate at which the room was sold
• If a room's rack and actual rates do not match, auditor should consider:
• If room was sold at discount, is discounted rate correct?
• If only one guest in a room and rate is half the rack rate, is the guest part of a shared reservation? Did the second guest register? Was the second guest properly charged?
• If room is complimentary, is there appropriate supporting documentation?
• Verification is done by comparing registration form to the FO system record
• Registration form provides snapshot of the guest's information, including room rate, at check-in.
• Proper use of room revenue and count information is the foundation of room revenue analysis
• Front office auditor may produce report for review by FO management
• Measures room revenue potential against actual room revenue

4. Balance All Departmental Accounts
• More efficient to balance all departmental accounts first and then look for individual posting errors within an out-of-balance department
• Auditor balances all revenue center departments using source documents that originated in the revenue center
• Balance all FO accounts against departmental transaction information
• Vouchers received at front desk are compared with revenue center summaries to help resolve discrepancies as they arise
• A detailed department audit (by shift or by cashier) may be conducted and individual postings reviewed until error is corrected
• Trial balance: balance the revenue center departments through a test of the FO accounts to see if they are in balance before the final audit is completed
• FO system generates trial balance before intiating final audit reports
• Uncovers any corrections or adjustments that need to be made during the audit process
• Perform the trial balance before the system posts the day's room and tax charges to simplify the final audit procedure
• Mathematical balance in guest and non-guest accounts against departmental totals does not necessarily mean that the proper accounts were selected for posting
• Posting the correct amount to an incorrect account will go unnoticed until guest complains
Departmental Balancing Sequence
1. Sort vouchers by originating departments
2. Consider each department's vouchers
a. Separate the correction vouchers according to the departments they are to be applied against
b. Total the corrections for each department
3. After verifying each of the corrections with the departments affected, total the correction vouchers. The corrections total must coincide with the correction figures on the front office shift report.
4. Consider the vouchers again
a. Total the rest of the outstanding vouchers
b. Check individual transaction values on the bottom of the voucher against the figure appearing on the department detail report
5. The vouchers should agree with the corrected figures of the departments. If the totals do not agree with either figure, the error should be resolved before proceeding.
a. Verify that the date on the voucher is the current day's date.
b. Check off each individual posting against its support document (voucher) until the error is found. This can be tedious if there are several errors. However, if the front office uses validating printers, a thorough check of the support document validations will help pinpoint errors.
c. Post any additional corrections or adjustments.
6. In a computerized system, revised individual shift reports can be printed after the corrections and adjustments have been made. In any operations mode, all of the backup data should be packaged for the accounting office to review.

5. Verify No-Show Reservations
• Auditor may be responsible for clearing the reservation file or filing and posting charges to no-show accounts
• Auditor must verify reservation was guaranteed and guest never registered
• Duplicate reservations may be made for a guest or the guest's name may be misspelled and another record accidentally created
• If not identify, guest may arrive but appear to be a no-show under the second reservation
• Incorrect billing may lead the credit card company to reevaluate its legal agreements and relationship with the hotel
• May cause the hotel to lose the guest's future business and possibly the travel agency or intermediary

6. Post Room Rates and Taxes
• Automatic posting of room rates and room taxes to guest folios takes place at end of day
• Once room rates and taxes are posted, report may be generated for management
• Most frequently cited advantage of an automated FO system
• Highly reliable, guaranteed to be accurate, with no chance for pickup, tax calculation, or posting errors.
• Especially helpful to hotels with bed or occupancy taxes
• Pre-set system to post daily recurring charges, such as valet parking or gratuities to save time and improve accuracy.

7. Prepare Reports
• Auditor prepares reports that indicate the status of FO activities and operations: including final department detail and summary reports, daily operations report, the high balance report
• Daily operations report: summarizes the day's business and provides insight into revenues, receivables, operating statistics, and cash transactions related to the front office, considered most important outcome of FO audit.
• High balance report: identifies guests whose charges are approaching an account credit limit designated by the hotel (the house limit)
• Daily summary (or flash report) reports: provides a snapshot of important operating statistics for the previous day, as well as month-todate totals. Very informative and easy to read. May show an occupancy and rate forecast, alerting management to overnight changes.
• Final department detail and summary reports may be filed along with source documents for review by accounting to help prove that all transactions were properly posted and accounted for
• Software may be programmed to produce management reports on demand
• Automated system may produce specialty reports: group sales report, package plan report, special promotion or advertising program, frequent guest list, VIP list

8. Prepare Cash Receipts for Deposit
• Auditor prepares a cash deposit voucher as part of the audit process
• If FO cash receipts have not yet been deposited in a bank, auditor compares postings of cash payments and paid-outs (net cash receipts) with actual cash on hand
• Copy of shift report may be included to support any overage, shortage, or due back balances.
• Account and departmental balancing often involves cash transactions, accurate cash depositing may depend on an effective audit process.
• Blind drop: cashiers deposit cash at the end of their shifts without knowing how much in cash receipts the system has recorded for them
• Used when management is concerned employees may not be reporting all cash received
• Night auditor compares system totals per cashier with the actual cahsier drop document and variances are reported

9. Perform System Back-Up Routine
• Automated system eliminates the need for a room rack, reservation cards, and other forms and devices, but now FO accounting is dependent on the continuous functioning of the system
• Back-up reports must be run and various media duplicated in a timely manner so that the front office can continue to run smoothly
• Two guest lists are printed for back-up and emergency sue: one for front desk staff and for switchboard operator may print one for departments that don't usually have access to system, such as security
• Printed room status report enables agents to identify vacant and ready rooms
• Guest ledger report: contains opening and closing account balances for all registered guests
• FO activity report: contains expected arrival, stayover, and departure information for several days
• In some systems, the next day's registration cards are pre-printed as part of the FO activity report
• ADA requires hotels to keep track of guests with disabilities in case of an emergency
• System back-up should be conducted after each audit and stored in a safe place
• Two types of system back-up: a daily back-up (a copy of FO electronic files) and system back-up (eliminating account and transaction information deemed no longer of value)
• Expired guest folio accounts that are at least three days old may be deleted from active storage files and be archived

10. Distribute Reports
• Due to the sensitive and confidential nature of FO information, auditor must promptly deliver appropriate reports to authorized individuals
• Distribution is final step in audit routine
• Managers can make more informed decisions if reports are completed accurately and delivered on time

What is the function of the system update?

• System update accomplishes many of the functions in the audit routine
• Performed daily to enable system file reorganization, system maintenance, and report production, and to provide an end-of-day closure
• FO systems audit transactional postings as they occur, so there is little need for auditor to perform account postings
• FO system may be connected by remote communications to revenue centers for automatic postings
• Interface capability enables system to control and monitor charges made at remote revenue outlets throughout the hotel
• Auditor should routinely review interface procedures to ensure the proper handling of automatically posted transactions from revenue outlets
• Housekeepers report the current occupancy status of a room through the room's telephone or other input device before they leave the room
• Automatically updates the room status in the front office system
• Can print room variance report automatically
• Balancing of FO and department accounts can be continuously monitored through an online accounting system
• As a charge purchase is entered at a remote POS terminal, the charge may be instantaneously posted to an electronic guest folio and an electronic departmental control folio
• Control folio: online internal accounting file that supports account postings originating from an operating department
• To balance departments, system tests all non-control folio entries against individual control folio transactions
• Imbalance identifies a problem in automatic posting techniques or shortcoming in FO accounting procedures
• Since system update requires file reorganization as well as accounting detail, its output has a high degree of reliability
• Reservation confirmations, revenue center summaries, expected arrival and departure lists, folios for guests expected to depart, a daily report of operations, and billing statements for non-guest accounts may be produced as a result of an automated system update
• FO systems generate copies of several other files as a safeguard against system failure: activity reports, guest lists, room status reports, account statements

What are the benefits of centralized front office automation?

• FO automation simplifies audit and allows multiple audits to be performed from a single site
• Reduces staffing requirements and provides a basis for consolidated reporting
• Works best in limited-service hotels where there are few revenue outlets and all departments are closed before the start of the audit process
• At the central location, the auditor can obtain info to complete audit over secure data lines
• Auditor posts corrective entries, backs up the system, and produces reports for distribution in each hotel
• Bucket check must be performed by the evening shift in these hotels, since the originating documentation is not available
• For chain hotels, producing a consolidated report for a group of hotels is also beneficial
• Manager responsible for multiple properties gains access to diverse data and can directly generate reports

What are the 7 functions of management?

1. Planning
• Planning is the most important management function, but is given less attention than it requires
• Without direction and focus, FOM may be involved with tasks unrelated accomplishing the goals
• First step is to define the department's goals
• Near-term goal: raise occupancy to 85%
• Long-term goal: improve guest satisfaction scores
• Use general goals to plan specific, measurable objectives
• Determine the strategies to attain the objectives
• Important component of planning is communication
• Communicate plans with managers to whom he reports to ensure departmental activities are consistent with overall hotel planning
• Share plans with department members likely to be affected to seek input/feedback
• Communication is most effective in writing so ideas are documented and clearly illustrated
• Benefits to communication
• Department staff contribute and take ownership of plan; more willing to accept and support plans
• Staff provide constructive comments and manager can address concerns
• Everyone has more comprehensive understanding of the goal or objective
• Planning often requires compromise, staff more understanding of compromises when part of planning process

2. Organizing
• Organizing: dividing the work among front office staff
• Everyone gets fair assignment
• Al work can be completed in a timely manner
• Determining the order tasks are to be performed and establishing completion deadlines

3. Coordinating
• Coordinating: bringing together and using the available resources to attain planned goals
• FOM must coordinate efforts of individuals to work efficiently, effectively, and on time
• Involve working with other departments

4. Staffing
• Staffing: recruiting applicants and selecting those best qualified
• Develop job descriptions that thoroughly describe position and clearly identify skills and qualities needed
• HR first level of qualifying and interviewing applicants
• HR must resolve issues regarding if job description properly represents the position
• Involves scheduling employees and applicants
• Based on formulas for calculating employees required to meet guest and operational needs

5. Leading
• Leading: overseeing, motivating, training, disciplining, and setting an example
• To direct, must first analyze work, organize tasks, and consider environment
• If department is behind, FOM steps in and assists
• Other department heads count on FOM to provide leadership
• Senior managers depend on FOM to ensure assignments are completed successfully
• Lead by example
• Participate in day-to-day operations to demonstrate job knowledge and skill mastery
• Demonstrates what is expected
• Must be available and earn respect
• Work varying shifts to be available to all staff

6. Controlling
• Controls in place to protect the hotel's assets
• Works only when FOM believe in the system's importance and follows procedures
• Ensures results closely match planned results
• Keep FO operations on course in attaining planned goals

7. Evaluating
• Evaluating: extent to which planned goals are attained
• Involves reviewing and revising goals
• Three important front office planning functions
• Establishing room rates
• Forecasting room availability
• Budgeting for operations

How are room rates established? What is rack rate? What are the special room rate categories? Whose job is it to establish rack rates?

• FO will have more than one room rate category for each of its guestrooms
• Room rate categories correspond to types of rooms that are comparable in square footage and furnishings
• Differences are based on: room size, location, view, furnishings, and amenities
• Rack rate: price for an overnight accommodation, as determined listed on the room rate schedule to inform agents of the standard selling price of each guestroom
• Unless guest qualifies for authorized discount, the rack rate will apply.
• Rack rates must be reported to local and state authorities and posted in public areas or inside the guestroom and kept current
• Room rates are assigned by room type category
• When property includes a meal plan in its room pricing, the rack rate is based upon the room characteristics and number of people expected to occupy the room
• Resort pricing for single room rate is greater than value of property's double occupancy rate divided by two because hotel incurs certain fixed costs
• More often than not, guests may ask for and qualify for discount rates
• Special room rate categories include:
• Corporate or commercial rate: companies that provide frequent business for hotel or its chain
• Group rate
• Promotional rate: I.E. AAA or AARP, may be extended during special low occupancy periods to any guests to promote occupancy
• Incentive rate: offered to guests in affiliated organizations, such as travel agencies and airlines because of to promote future potential referral business
• Family rate
• Package plan rate: includes events, activities, breakfast, golf, tennis, parking, etc.
• Internet rate: web rate is classified as "best available rate" and is available to guests making their online reservations themselves. Many companies guarantee that the BAR is at their own website since hotel incurs less expense through its own website, so its rates will naturally be lower.
• Distressed¬-inventory rate: rate offered when hotel projects or experiences low occupancy. Represents a significant discount off the rack rate and is implemented to help build occupancy. Discount will be sufficient to attract guests who seek lower rates. Usually offered at opaque Internet websites. Most hotels restrict use of this to times with extremely low occupancy expectations.
• Complimentary rate
• FOM must rigidly control rooms sold at special rates
• May adversely affect average room rate and room revenue
• Examine circumstances under which special rates are being granted and ensure staff is adhering to prescribed policies and obtaining proper approvals
• Most hotels require GM or senior management approval for comp rates
• Establishing rack rates for room types and determining discount categories and special rates are major duties of the revenue manager
• Revenue manager recommends rack rates to senior management after analyzing forecasted occupancy and business conditions in the market place
• Rack rates usually determined on a yearly basis (subject to frequent revision) and are a major decision factor in budgeting
• Determining discounted rates is more tactical and decided by the revenue manager
• Management should consider factors such as operating expenses, guest demands, market conditions, and inflationary factors when determining rack rates or discounted rates
• Room rates serve as a market positioning statement since they directly reflect service expectations to the target market and are critical to a hotel's success
• Three popular approaches to pricing rooms: market condition approach, rule-of-thumb approach, and the Hubbart Formul

Describe the market condition approach. What are the problems with it?

• The commonsense approach
• Management looks at comparable hotels in the geographical market and sees what they are charging for the same product
• These properties are called the competitive set and are made up of 6 to 10 properties in a market that are the most important competition
• Competition can be based on location, property ratings, property type, brand identification
• Not every lodging property in a particular location is a direct competitor
• The concept is that the hotel can charge only what the market will accept, which is dictated by the competition
• Information found in various public domain sources, including blind call (hotel anonymously asks for availability and rates on specific dates)
• Focuses on these questions:
• How do our rates compare to the competition?
• Are our rates much lower or higher than competition? How are the affecting our revenue and our share of the business?
• What is our occupancy percentage? What is the occupancy percentage of the competitive set? Will total revenue improve if we increase (or decrease) our rates?
• Have any trends emerged in the past 6 months?
• Commercially available reports providing this information from neutral sources: TIMS, Phaser, and RateVIEW reports
• Future occupancy and rate trends found by studying the quoted rates and availability for the competitive set
• TIMS Report: lists one month's rate information for a property and five local competitors. Rates are broken down daily and includes info on sold-out nights, low rate, low rate variance from the subscribing property, low corporate rate, low corporate rate variance, special rates date available, high-low comparisons, and an index of room types and rates for the period
• Phaser Report: comparative analysis of room rates, including information from internal distribution channels (central reservations office) and external distribution channels (GDS) for a property and its competitive set.
• RateVIEW: series of reports detailing how a property compares with its competitive set for future dates, looking at many distribution channels
• Determine historical market conditions by subscribing to industry reports
• Smith Travel Accommodations Research (STAR) Report: best known; provides historical information on occupancy, average room rate, RevPAR, and market share
• By tracking information over a period of months and years, rates and occupancy of competitive set can be established
• Problems with this report
• If property is new, construction costs will be higher than those of competition, so hotel is not likely to have an identical cost structure or be as profitable as the competition initially
• Does not take the value of the property into consideration as the property is new and perhaps offers newer amenities, so the value can be greater
• Allows the local market to determine the rate, but does not take into account what a strong sales effort may accomplish. By allowing the competition to determine the rates, this could significant affect the profitability.
• The downturn of business between 2000 and the end of 2004 rendered many historical views of rates inaccurate
• Hotel managers must not base their rates on rates of other hotels through direct discussions with competitors as these are violations of U.S. antitrust laws
• Rates may be available from public sources: Internet, GDS, published rate brochures, AAA directories

Describe the rule-of-thumb approach. What are the problems with it?

• Rule-of-thumb approach: sets the rate of a room at $1 for each $1,000 of construction and furnishings cost per room, assuming a 70% occupancy.
• Problems
• Fails to consider the effects of inflations and increased costs of labor, furnishing, and supplies; might consider the current replacement cost of the hotel
• Index current costs against original costs ($1 per $1000 five years ago would require $1.16 per $1,000 today at an annual inflation rate increase of 3%)
• Fails to consider the contribution of other facilities and services toward the hotel's desired profitability. Guest pay extra for services, and if these contribute to profitability, the hotel may have less pressure to charge higher room rates.
• Consider the hotel's occupancy level: if lower occupancy, hotel will have to capture a higher average rate to generate the same amount of hotel revenue. Hotels tend to have a high level of fixed expenses, so FOM must understand effects of room rate and room occupancy or room revenue to ensure hotel meets its revenue goals and financial obligations

Describe the Hubbart Formula approach.

• Determines average selling price per room by considering operating costs, desired profits, and expected number of rooms sold
• Starts with desired profit, adds income taxes, adds fixed charges and management fees, followed by operating overhead expenses and direct operating expenses
• Considered a bottom-up approach to pricing rooms because its initial item (net income/profit) appears at the bottom of the income statement, second item (taxes) is the second item from the bottom
• 8 steps
1. Calculate the hotel's desired profit by multiplying the desired rate of return (ROI) by the owners' investment
2. Calculate pretax profits by dividing desired profit by 1 minus the hotel's tax rate
3. Calculate fixed charges and management fees (e.g. depreciation, interest expense, property taxes, insurance, amortization, building mortgage, land, rent, management fees)
4. Calculate undistributed operating expenses (e.g. admin and general, IT, HR, transportation, marketing, property operation and maintenance, and energy costs)
5. Estimate non-room operated department income or loss (F&B, telecommunications)
6. Calculate the required rooms department income. The sum of pretax profits (2), fixed charges and management fees (3), undistributed operating expenses (4), and other operated department losses less other operated department income (5) equals the required rooms department income. Places overall financial burden of the hotel on the rooms department.
7. Determine the rooms department revenue. The required rooms department income (6), plus rooms department direct expenses of payroll and related expenses, plus other direct operating expenses, equals the required rooms department revenue.
8. Calculate the average room rate by dividing rooms department revenue (7) by the expected number of rooms to be sold.
• Useful in setting target average prices as opposed to actual average prices
• Generates average room rate at the hotel's point of profitability
• Relies on management's best estimates of total rooms occupied and the single/double occupancy mix to determine target rates
• Management assumes that competitor's average price will increase at 5% each year, but new hotels may have a price premium
• Hotels will need to devise some method of financing the shortfall
• Most hotels do not generate profits during the first few years of operation
• Operating deficits should always be included in the hotel's financing plan

What is a forecast? What information can be used to forecast? What occupancy data should be collected?

• Most important short-term planning that FOM do is forecasting the number of rooms available for future reservations
• Room availability forecasts manage the reservations process and guide FO staff in effective rooms management
• Forecasting is especially important when a full house is possible.
• Room availability forecast can also be used as an occupancy forecast
• Occupancy forecasts are the foundation for room pricing decision
• Can influence when rooms are placed on out-of-order status for maintenance or deep cleaning
• Without an accurate forecast, rooms may go unsold or be sold at inappropriate rates.
• Can be useful for scheduling
• Serve as a guide in determining operating costs, so they should try to ensure accuracy
• Skill is acquired through experience, effective recordkeeping, and accurate counting methods
• Helpful information in room availability forecasting
• Knowledge of the hotel and its surrounding area
• Market profiles of the constituencies the hotel serves
• Occupancy data for the past several months and same period of the previous year
• Reservation trends and a history of reservation lead times (how far in advance reservation are made)
• A listing of special events scheduled in the surrounding geographic area
• Business and historical profiles of specific groups booked for the forecast dates
• The number of non-guaranteed and guaranteed reservations and an estimate of the number of expected no-shows
• The percentage of rooms already reserved and the cut-off date for group room blocks held for the forecast dates
• The room availability of the most important competing hotels for the forecast dates (as discovered through blind calls)
• The impact of citywide or multi-hotel groups and their potential influence on the forecast dates
• Plans for remodeling or renovating the hotel that would change the number of available rooms
• Construction or renovating plans for competitive hotels in the area


• Process of forecasting availability relies on historical occupancy data as well as business already committed. Historical data takes some of the guesswork out of forecasting.
• The following daily occupancy data should be collected:
• Number of expected room arrivals (based on reservations and trends for new reservations/cancellations)
• Number of expected room walk-ins (based on history)
• Number of expected room stayovers (based on reservations)
• Number of expected room no-shows (based on historical records)
• Number of expected room understays (based on history)
• Number of expected room check-outs (based on existing reservations)
• Number of expected room overstays based on history)
• Some hotels with a very high double occupancy percentage may be as concerned with guest counts as room counts
• The hotel's daily reports is invaluable in this research
• Data can be used to calculate daily operating ratios
• Ratios: relationship between two numbers determined by dividing one by the other
• Managers should look for consistency in ratios (may be same ratio every day or identifiable patterns)

What is the percentage of no-shows? What is it used for? Do non-guaranteed reservations have higher no-show percentages or lower?

Percentage of no-shows = number of room no-shows ÷ number of room reservations

• Helps the FOM decide when (and if) to sell already-committed rooms to walk-in guests
• Some properties track no-show statistics in relation to guaranteed and non-guaranteed reservations
• Non-guaranteed reservations have a higher no-show percentage than guaranteed reservations
• Properly incorporating no-show allowances into room availability forecasts depends on the mix of business; for example, corporate groups generally have a much lower no-show percentage
• Hotels and resorts control no-shows through policies and procedures

What is the percentage of walk-ins?

• Percentage of walk-ins = number of room walk-ins ÷ total number of room arrivals

• Hotels can sell rooms to walk-in guests at a higher rate, since they have less opportunity to consider alternate properties
• May show guestroom to guest, which is more effective
• From a planning perspective, it is better to have reservations
• Other ratios can dramatically affect the walk-in ratio, so track how ratios affect on another.
• Know what is going on in the marketplace, there is better opportunity for walk-ins if nearby hotels are experiencing high demands

What is the percentage of overstays?

Percentage of overstays = number of overstay rooms ÷ number of expected check-outs

• Overstays: guests who stay beyond their originally scheduled departure dates
• May be guaranteed/non-guaranteed reservations or walk-in
• Number of expected room check-outs can be calculated by number actual departures minus understays plus overstays
• Considered understays on the day they checked out
• To help regulate room overstays, agents must verify arriving guest's departure date at check-in
• Overstays are problematic when specific rooms have been blocked for arriving guests, especially important for suites.

What is the percentage of under stays?

Percentage of under stays = number of under stay rooms ÷ number of expected check-outs

• Understays: guests who check out before their originally scheduled departure dates
• May have arrived with guaranteed/non-guaranteed reservations or as walk-ins
• Understays should be determined separately and summed for each day in a multi-day period
• Understays create empty rooms that typically are difficult to fill
• May represent permanently lost room revenue
• To regulate understay and overstay rooms:
• Confirm or reconfirm each guest's departure date at registration
• Present an alternate guestroom reservation form to a registered guest, explaining that an arriving guest holds a reservation for his assigned room. May be placed before or the morning of the scheduled departure.
• Review group history. May be able to plan for early departures based on group's history of transient guests departing before their scheduled date. May apply the reservation deposit to the last night, instead of the first night
• Contact potential overstay guests about their scheduled departure date to confirm their intention to check out. Rooms with guests expected to check out should be flagged. Guests who have not left by check-out time should be contacted and asked about their departure intentions. Procedures allows sufficient time to modify previous planning.

What is the forecast formula?

Total Number of Guestrooms
- Number of Out-of-Order Rooms
- Number of Room Stayovers
- Number of Room Reservations
+ Number of Room Reservations X Percentage of No-Shows
+ Number of Room Understays
- Number of Room Overstays
-------------------------------------
Number of Rooms Available for Sale

• Does not include walk-ins because number of walk-ins can be determined by the number of rooms available for sale
• FOM can determine whether to accept more reservations and determine its level of staffing
• FO decisions must remain flexible
• Room availability forecasts are based on assumptions whose validity may vary.

What are the forecast forms?

Sample Forecast Forms
• Occupancy forecasts are developed on a monthly basis and reviewed by food and beverage and rooms division management to forecast revenues, project expenses, and develop labor schedules
• A ten-day forecast may be used to update labor scheduling and cost projections and may be supplemented by a more current three-day forecast
• Forecasts maintain appropriate staff levels and contain costs

1. Ten-Day Forecast
• Developed jointly by the FOM and the reservations manager, possibly with forecast committee
• Develop ten-day forecast from their yearly forecast
• Consists of:
• Daily forecasted occupancy figures, including room arrivals, departures, rooms sold, and number of guests
• Number of group commitments, with a listing of each group
• S name, arrival and departure dates, number of rooms reserved, number of guests, and perhaps quoted room rates
• A comparison of the previous period's forecasted and actual room counts and occupancy percentages
• Special forecast may be prepared for F&B, banquet, and catering operations
• Includes house count: expected number of guests
• Sometimes house count is divided into group and non-group categories so dining room managers can understand nature of business and their staffing needs.
• Should be completed and distributed to all department offices by mid-week for the coming period
• Can be especially helpful to housekeeping
• Developed from data collected through several FO sources
• How to calculate ten-day forecast
1. Current number of occupied room is reviewed; estimated number of overstays and expected departures are noted
2. Relevant reservation information is evaluated for each room (and guest) by date of arrival, length of stay, and date of departure. Reconcile these counts with reservation control data.
3. Actual counts are adjusted to reflect the projected percentage of no-shows, anticipated understays, and expected walk-ins. These projections are based on the hotel's recent history, seasonality of its business, and the known group histories.
4. Conventions and other groups are listed to alert various department managers to possible periods of heavy, or light, check-ins and check-outs. Number of rooms assigned each day to each group may also be noted.
• Most automated systems provide a summary of recorded data in a report
• Only revenue management systems are programmed to "forecast" business
• Programming hotel PMS to successfully analyze historical trends and market conditions have been attempted with little success.
• Revenue management systems are more sophisticated, with special trend analysis and regression analysis programming built in
• FOM's knowledge and skill ultimately determines accuracy of the forecast

2. Three-Day Forecast
• Three-day forecast: updated report that reflects a more current estimate of room availability
• Details significant changes from ten-day forecast
• Guide management in fine-tuning labor schedules and adjusting room availability information
• Brief daily revenue meeting is held to focus on occupancy and rate changes; results of this meeting is included in the three-day forecast

* Room Count Considerations
• Control books, charts, software applications, projections, ratios, and formulas can be essential in short- and long-range room count planning
• Each day, FO performs several physical counts of rooms occupied, vacant, reserved, and due to check out, to complete the occupancy statistics for that day
• Automated system may reduce the need for most final counts, since system continually updates availability information
• Important for agents to know exactly how many rooms are available, especially if hotel expect to operate near 100%
• Procedures for gathering room count information are established, planning procedures can be extended to longer periods of time to form a more reliable basis for revenue, expense, and labor forecasting.

~ Sample Daily Checklist for Accurate Room Counts
• Make counts of the rack and reservations. On tight days, a count should be made at 7 AM, noon, 3 PM and 6 PM. On normal days, 7 AM and 6 PM will suffice.
• Check room rack against the folio bucket to catch sleepers and skippers
• Check housekeeping reports against the room rack to catch sleepers and skippers
• Check for rooms that are due out, but still have balances on their folios, especially where credit cards are the indicated source of payment.
• Check reservations for any duplications
• Call the reservations system to make sure all cancellations were transmitted.
• Check the switchboard, telephone rack, and/or alphabetical room rack to make sure that the guest is not already registered.
• Call the local airport for a report on canceled flights
• Check the weather reports for cities from which a number of guests are expected
• Check reservations against convention blocks to catch duplications
• Check with other hotels for duplicate reservations if a housing or convention bureau indicated the reservation was a second choice.
• Check arrival dates on all reservation forms to be sure none were misfiled
• Check the rooms cancellation list
• If a reservation was made through the reservations manager, sales manager, or someone in the executive office and the property is close to full, call that person. Often, such guests are personal friends and are willing to help out by staying somewhere else.
• Close to the property's cut-off time, consider placing a person-to-person phone call to any guest with a nonguaranteed reservation who hasn't arrived. Confirm whether or not he will arrive that night.
• After the property's cut-off time, if it becomes necessary, pull any reservations that were not guaranteed or prepaid.
• If any rooms are out-of-order or not presently in use, check to see if they can be made up. Let housekeeping know when a tight day is expected, so that all possible rooms are made up.
• Before leaving work, convey in writing all pertinent information to the oncoming staff. Good communication is essential.

What is the most important long-term planning function for FOMs? What does it require?

• Most important long-term planning function for FOMs is budgeting front office operations
• Hotel annual operations budget is a profit plan that addresses all revenue sources and expense items
• Annual budgets are commonly divided into monthly plans, that in turn, are divided into weekly (and sometimes daily) plans.
• Budget plans become standards against which management can evaluate the actual results of operations.
• In most hotels, room revenues are greater than other revenues.
• Rooms divisions profits are also usually greater than other divisions
• Budget planning process requires the closely coordinated efforts of all management personnel
• FOM is responsible for rooms revenue forecasts
• Accounting staff must supply department managers with statistical information essential to the budget preparation process
• Account staff is responsible for coordinating the budget plans of individual department managers into a comprehensive property-wide operations budget for top management's review
• The GM and controller review departmental budget plans and prepare an overall hotel budget report for approval by the hotel's owners; if the budget is not satisfactory, elements requiring change may be returned to the appropriate managers for review and revisions
• FOM's primary responsibilities in budget planning are forecasting rooms revenue and estimating related expenses
• Rooms revenue is forecasted with input from the reservations manager, while expenses are estimated with input from all rooms department managers

How do you forecast annual rooms revenue?

• Forecasted Rooms Revenue = Rooms Available x Occupancy Percentage x ADR
• Historical financial information serve as the foundation on which FOMs build rooms revenue forecasts
• Methods of forecasting room revenue
• One method involves an analysis of rooms revenue from past periods
• Dollar and percentage differences are noted and the amount of rooms revenue for the budget year is predicted
• Bases the revenue projection on past room sales and average daily room rates
• Assumes that all rooms will be available for sale each day of the year
• This is probably not the case, but it is a reasonable starting point for projection.
• At some point, occupancy will not be able to grow any further, and may actually decline (i.e. new competitors enter the market, management anticipates shift in occupancy and adjust its forecasts, also apply this logic to rate and may decide to hold or even reduce rates to maintain or improve occupancy when new competitors enter the market).
• A more detailed approach would consider the variety of different rates corresponding to room types, guest profiles, days of the week, and seasonality of business.

What are some cost control strategies?

• Most expenses for FO operations are direct expenses in that they vary in direct proportion to rooms revenue
• Historical data used to calculate an approximate percentage of rooms revenue that each expense item may represent
• These percentage figures can be applied to the total amount of forecasted rooms revenue, resulting in dollar estimates for each expense category
• Typical rooms division expenses are payroll and related expenses; guestroom laundry (terry and linen); guest supplies (bath amenities, toilet tissue); hotel merchandising (in-room guest directory and promo brochures); travel agent commissions and direct reservation expenses
• When these costs are totaled and divided by the number of occupied rooms, the cost per occupied room is determined.
• Cost per occupied room is often expressed in dollars and as a percentage
• Management should question why costs continue to rise as a percentage of revenue.
• If costs continue to rise (as a percentage, not in dollars), profitability likely will be affected
• One of the outcomes of budgeting is to identify where costs are increasing as a percentage of revenue.
• Management can analyze why costs are increasing disproportionately with revenue and develop a plan to address the issue
• Most FO expenses vary proportionately with rooms revenue (and occupancy), so another method of estimating these expenses is to estimate variable costs per room sold and multiply these costs by the number of rooms expected to be sold.

How can you refine your budget plan?

• Departmental budget plans are commonly supported by detailed info gathered in the budget preparation process and recorded on worksheets and summary files
• Used provide an explanation of the reasoning behind the decisions made
• Support documents may also provide valuable assistance in the preparation of future budget plans.
• If no historical data is available, other sources, such as corporate headquarters and national accounting and consulting firms, can supply comparable budget information
• Many hotels refine expected results of operations and revise operations budgets as they progress through the budget year
• Reforecasting is suggested when actual operating results start to vary significantly from the operations budget
• Variances indicate conditions have changed since the budget was prepared
• While operating budgets are seldom changed once approved, reforecasting provides a more realistic picture of current operating conditions

What are some methods of evaluating front office operations?

• See if FO is attaining planned goals
• Successful FO managers evaluate results on a daily, monthly, quarterly, and yearly basis.
• Examine tools that FOM can use to evaluate the success of FO operations
• The daily operations report
• Occupancy ratios
• Rooms revenue analysis
• The hotel income statement
• The rooms schedule
• Rooms division budget reports
• Operating ratios
• Ratio standards

1. The Daily Operations Report
• Daily operations report (a.k.a. the manager's report, the daily report, and the daily revenue report): summarizes the hotel's financial activities during a 24-hour period
• Provides a means of reconciling cash, bank accounts, revenue, and accounts receivable
• Posting reference for various accounting journals and provides important data that must be input to link front and back office automated functions
• Daily operations report are unique structured to meet the needs of individual hotel properties
• Room statistics and occupancy ratios form an entire section of a typical daily operations report
• Enriched by comments and observations from the account staff
• Copies of the daily operations report are generally distributed to all department and division managers in the hotel

2. Occupancy Ratios
• Occupancy ratios measure the success of the FO in selling the hotel's primary product: guest rooms
• Following room statistics must be gathered to calculate basic occupancy ratios:
• Number of rooms available for sale
• Number of rooms sold
• Number of guests
• Number of guests per room
• Net rooms revenue
• These data are presented on the daily operations report
• Occupancy ratios can be computed from these data include occupancy percentage, multiple (or double) occupancy ratio, ADR, RevPAR, RevPAC, and average rate per guest
• Computed occupancy percentage and ADR may appear on a property's daily operations report
• Typically calculated on a daily, weekly, monthly, and yearly basis
• System generates occupied rooms data and calculates occupancy ratios for the FOM, who analyzes the information to identify trends, patterns, or problems
• Consider how a particular condition may produce different effects on occupancy
• As multiple occupancy increases, the ADR may also increase, but ADR per guest decreases

* Occupancy Percentage
• Occupancy percentage relates the number of rooms either sold or occupied to the number of rooms available during a specific period of time
• Some hotels use the number of rooms sold, while others use the number of rooms occupied
• Including comp rooms can change certain operating statistics, such as average room rate
• Using rooms sold/occupied/both is valid, depending upon the property's needs and history
• Sometimes out-of-order rooms may be included as an incentive to get those rooms fixed and recycled more quickly
• Including all rooms provides a consistent base
• Managers may artificially increase the calculated occupancy percentage by classifying unsold rooms as out-of-order
• Some properties do not include out-of-order rooms because the rooms are not available to sale
• May unfairly penalize FO staff, who have no control over out-of-order rooms
• Approach chosen should be used consistently

* Multiple Occupancy Ratio
• Multiple occupancy ratio (double occupancy ratio): used to forecast F&B revenue, indicate clean linen requirements, and analyze ADR
• Calculated by determining a multiple occupancy percentage or by determining the average number of guests per room sold or occupied (occupancy multiplier or on the multiple occupancy factor)
• Some hotels include complimentary rooms in the denominator to show the true effect of complimentary rooms on the ADR, this may be called the average house rate

* Average Daily Rate

* Revenue Per Available Room (RevPAR)
• Provides a statistical comparison of similar hotels
• RevPAR divides the total room revenue of the hotel by the number of available rooms


* Revenue per Available Customer (RevPAC)
• RevPAC divides the total revenue generation of the hotel by the number of guests staying overnight, showing the average revenue generated by each guest
• For hotels with high multiple occupancy, this is important, since it provides an average spending figure per guest
• In most hotels, the higher the multiple occupancy, the greater the total revenue

* Average Rate per Guest
• Resort hotels are often interested in knowing the ARG
• Inclusive of every guest in the hotel, including children

3. Rooms Revenue Analysis
• FO staff are expected to sell rooms at the rack rate unless a guest qualifies for an authorized discounted room rate
• Room rate variance report lists rooms that have been sold at other than rack rate
• FOM can review use of various special rates to determine whether staff has followed policies
• Yield statistic: evaluates the sales effectiveness of the FO staff, which is actual rooms revenue as a percentage of potential rooms revenue
Yield Statistic
• Potential rooms revenue is the amount of rooms revenue that can be generated if all the rooms in the hotel are sold at rack rate on a given day, week, month, or year
• Yield statistic: the ratio of actual to potential rooms revenue

4. The Hotel Income Statement
• Income statement: provides important financial information about the results of hotel operations for a given period of time
• Period may be one month or longer, but should not exceed one business year
• Reveals amount of net income for given period
• One of the most important financial statements management uses to evaluate the overall success of operations
• FOM may not directly rely on the hotel's income statement, it is an important financial indicator of operational success and profitability
• Relies in part on detailed FO information that is supplied through the rooms schedule
• Hotel's statement of income is often called a consolidated income statement
• Presents a composite picture of all the hotel's financial operations
• Rooms division information appears on the first line, under the category of operated departments
• Amount of income generated by the rooms division is determined by subtracting payroll and related expenses and other expenses from the amount of net revenue produced by the rooms division over the period
• Payroll expenses include those associated with FOM, agents, reservations, housekeepers, uniformed service
• No cost of sales to subtract because not a merchandising facility


5. The Rooms Schedule
• Statement of income shows only summary information
• Separate departmental income statements prepared by each revenue center provide more detail
• Departmental income statements are called "schedules" and are referenced on the hotel's statement of income.
• Accounting generally prepares the rooms schedule
• The figures are derived from several sources (i.e. time cards, payroll records, travel agency billings, supplier invoices, housekeeping)
• Reservation expenses are fees the hotel pays for central reservation services and reservations made through GDS and IDS
• By carefully reviewing the rooms schedule, the FOM can develop action plans to improve the division's financial condition and services

6. Rooms Division Budget Reports
• Accounting prepares monthly budget reports that compare actual revenue and expense figures with budgeted amounts
• These reports provide timely information for evaluating FO operations
• FO performance is judged according to how favorably the rooms division's monthly income and expense figures compare with budgeted amounts
• A typical budget report format should include both monthly variances and year-to-date variances for all budget items
• FOMs are more likely to focus on the monthly variances
• Dollar variances are generally considered either favorable or unfavorable as follows:
Favorable Variance Unfavorable Variance
Revenue Actual exceeds budget Budget exceeds actual
Expenses Budget exceeds actual Actual exceeds budget
• If the revenue variance is highly favorable, an unfavorable variance in expenses (i.e. payroll) is not necessarily negative
• May merely indicate greater expense associated with serving more guests
• Divide rooms occupied for the period into the actual cost and the budgeted cost. If the actual cost is at or below the budgeted cost per room, the variance is actually positive, even though there was more expense
• Percentage variances are determined by dividing the dollar variance by the budgeted amount
• Either dollar variances alone or percentage variances alone may not indicate the significance of the variances reported
• The fact that actual results differ from budgeted amounts shouldn't be surprising
• FOMs should not analyze every variance, only significant variances
• GM and controller can provide criteria by which the FOM can determine which variances are significant

7. Operating Ratios
• Operating ratios: assists in evaluating the success of FO operations
• Payroll and related expenses tends to be the largest single expense item for the rooms division as well as the entire hotel
• Labor costs are analyzed on a departmental basis
• Dividing the payroll and related expenses of the rooms division by the division's net room revenue yields one of the most frequently analyzed areas of FO operations - labor cost
• Operating ratios should be compared against proper standards - budgeted percentages, for example
• Any significant differences between actual and budgeted labor cost percentages must be carefully investigated
• Actual figures for the current and previous periods, as well as budgeted amounts, are itemized for comparative analysis
• Differences should be highlighted an explained in the remarks section
• By conducting a payroll and related expenses analysis, FOM demonstrates that he or she attends to the most important controllable expense in the rooms division
• Careful attention to staffing as the number of rooms sold fluctuates can guarantee that the percentage of payroll and related expenses to total revenue remains relatively constant from month to month

8. Ratio Standards
• Operating ratios are meaningful only when compared against useful criteria such as:
• Planned ratio goals
• Corresponding historical ratios
• Industry averages
• Ratios are best compared against planned ratio goals
• Expectation of a lower labor cost percentage may reflect FOM's efforts to improve scheduling procedures and other factors related to the cost of labor
• Comparing actual with goal, manager can measure the success of his efforts to control labor costs
• Industry averages may provide a useful standard against which to compare operating ratios
• Found in publications prepared by the national accounting firms and trade associations serving the hospitality industry
• Operating ratios are only indicators, they do not solve problems or necessarily reveal the source of a problem
• When ratios vary significantly, problems may exist
• More analysis and investigation are necessary to determine appropriate corrective actions

How can one plan for disasters?

• There are various types of disasters, including power failures, automated system failures, criminal activities, severe weather, floods, fires, terrorism
• Many disasters can be anticipated and plans should be in place to deal with them
• Security director should be involved in the design, documentation, implementation, and ongoing revision of FO disaster plans
• If no security department, various other sources from which to draw expertise include AHLA
• Disaster plans must state which supplemental or corrective actions FO personnel should take if essential technology applications fail (e.g. PMS, telecommunications, electronic locking system)
• System outages are short term and minor, they undermine ability of hotel to serve its guests
• One of the most common issues a hotel faces is criminal activities
• FOM should prepare by creating procedures for dealing effectively and safely with it
• Know who to contact if criminal activity and what other procedures to follow
• Severe weather, floods, and other natural disaster require special planning to deal with them successfully
• Hotel's plans should be coordinated with local and regional disaster planning agencies
• Should consider the possible loss of utilities or the isolation of the property
• A fire, terrorism attack, etc. may require a complete hotel evacuation and shutdown of operations
• FO employees must know how to conduct themselves as representatives of hotel
• Know what documentation to remove from property, what to secure by locks, and what to do with hotel assets
• Assist with evacuating guests, directing them to safe locations
• Foreseeable disasters require planning and training so the FO and the hotel as a whole can successfully deal with them should they occur
• Management should periodically review and update disaster plans
• Training must be ongoing to be effective, with refresher sessions regularly scheduled.

Describe the concept of revenue management and how can it be applied to the hotel industry?

• One dimensional analyses, such as occupancy percentage or ADR, fail to capture the relationship between these two factors and the room revenue they produce
• Revenue management combines occupancy percentage and ADR into the yield statistic.
• FOM uses potential revenue as the standard against which actual revenue can be prepared

* The Concept of Revenue Management
• Originated in the airline industry
• Basically where reservations are taken into a perishable commodity
• The key is the ability to monitor demand develop reliable forecasts
• If forecast for low occupancy, strategy would be to keep room rates low to convert every room availability inquiry into a reservation
• Managers realized room rates could be accurately adjusted based upon the demand of specific market segments (i.e. business travelers less than 7 days prior to arrival, leisure travelers booking 3-6 months in advance, frequent guests, Internet reservations)
• Hotel managers focused on making the best of each selling opportunities
• Sell the right product (guestrooms/banquets) to the right customer (business/leisure) on the right day (weekday/end) for the right price
• Use revenue management techniques to evaluate the total revenue potential of a guest or group
• Focus on guestroom revenue, since this is the most important revenue for most hotels
• Some managers believe revenue management is too quantitative or fails to see the potential benefits derived from the work necessary
• Based on supply and demand
• Prices tend to rise when demand exceeds supply
• Prices tend to fall when supply exceeds demand
• Proper pricing adjustments is the key to increased profitability
• Hotel's focus is shifting form high-volume bookings to high-profit bookings

* Hotel Industry Applications
• Hotels have a fixed inventory of perishable products that cannot be stored if unsold
• Real commodity that hotels sell is time in a given space
• If a room goes unsold, there is no way to recover the time lost and therefore the revenue lost
• To make forecast, they have to understand the property and the competitive market
• Must consider future events
• Forecasts help determine room rates and whether reservation request should be accepted
• FOM have applied such demand-forecasting strategies to room reservations systems; MIS, room and package pricing; rooms and revenue management; seasonal rate determination; pre-theater dinner specials; and special, group, tour operator, and travel agent rates
• Benefits of revenue management including:
• Improved forecasting
• Improved seasonal pricing and inventory decisions
• Identification of new market segments
• Identification of market segment demands
• Enhanced coordination between the FO and sales divisions
• Determination of discounting activity
• Improved development of short-term and long-term business plans
• Establishment of a value-based rate structure
• Increased business and profits
• Savings in labor costs and other operating expenses
• Initiation of consistent guest-contact scripting (that is, planned responses to guest inquiries or requests regarding reservations)
• Revenue management strategies and tactics is about picking and choosing the reservations that most closely match the guest mix that hotel management desires
• Most hotels seek a mix of two or more guest segments
• Guest mix ensures that the hotel's business will not be significantly affected if business from one segment goes into decline
• Identify high yield guest segments - the ones with guests who will pay the most and stay the longest
• Control room rates and availability through rate and stay restrictions
• View each day as a separate situation and implement tactics best suited to the property and its guests, market, and demand conditions through capacity management, discount allocation, and duration control

Describe the concept of capacity management. What are some of the risks?

• Involves various methods of controlling and limiting room supply
• Capacity management (selective overbooking): balances the risk of overselling guestrooms against the potential loss of revenue arising from room spoilage (rooms going unoccupied after hotel stops taking reservations)
• Determining how many walk-ins to accept on the day of arrival
• Advantageous to overbook more rooms in lower-priced categories because upgrading to higher-priced rooms is an acceptable solution
• Amount of such overbooking depends on the level of demand for the higher-priced rooms
• Influenced by the availability of rooms at neighboring hotels or other competing properties
• Risks
• Better to have some rooms vacant than to walk guests to other hotels, leading to guest dissatisfaction
• Guests will change brands
• Be aware of local laws
• Group attrition: when a group fails to book its committed number of room nights, the resulting shortfall is termed attrition
• Elevating group attrition:
• Group history: if group is notorious for missing its targeted room nights, hotel management will make adjustments to the expected business at the front end rather than wait until late
• Online shopping: Group attendees often shop for a lower room rate than the rate negotiated for the group at the host hotel(s). May opt to stay at a nearby property if they discover a lower rate
• Business sourcing: volume of occupancy generated by non-group segments (business/leisure) has decreased, thereby placing a heavier emphasis on successfully marketing to group and convention business
• Meeting planners now use techniques to ensure to meet their room-night pickup commitments: restrict attendance at meetings to those staying in approved hotels, higher registration fees.
• Hotel managers manage their hotels' discount rates, to ensure that in-house groups receive the lowest publish rate; do not offer loyalty-program rewards to guests who pay significantly discounted rates

Describe the concept of discount allocation

• Discount allocation involves restricting the time period and product mix (rooms) available at reduced or discounted rates
• For each discounted room type, reservations are requested at various available rates, each set below rack rate
• Sale of a perishable item at a reduced room rate is often better than no sale at all
• Protect enough remaining rooms at a higher rate to satisfy the projected demand of rooms at that rate, while filling rooms that would otherwise have remained unsold
• Repeated for each rate level from rack rate on down as demand indicates
• Requires a reliable mechanism for demand forecasting
• Encourage upselling
• Reservation/front desk agent attempts to place a guest in a higher-rated room
• Requires a reliable estimate of price elasticity and/or the probability of upgrading (elasticity: relationship between price and demand)

Describe the concept of duration control

• Duration control: places time constraints on accepting reservations to protect sufficient space for multi-day requests (representing higher levels of revenues)
• A reservation for a one-night stay may be rejected, even though space is available for that night
• Common technique during peak periods
• These strategies may be combined
• These strategies must not be apparent to the guest

What are the revenue management formulas?

* Measuring Yield
• Revenue management is designed to measure revenue achievement
• One of the principal computations is the yield statistic: the ratio of actual room revenue to potential room revue
• Actual revenue is revenue generated by the number of rooms sold
• Potential revenue is the revenue that would be received if all rooms were sold at their rack rates
• Some resorts calculate their potential revenue as the amount the resort would earn if all rooms were sold at the double occupancy rate (resorts generally have a high percentage of double occupancy)
• Commercial hotels take into account percentage mix of rooms normally sold at both single and double occupancy (results in a lower total potential revenue, but may actually be able to exceed its potential)
• Hotel's yield statistic will vary with the method it uses, so it should use the method consistently
• If using first method, formulas 1, 3, 4, and 5 are not applicable, and the potential average double rate (2) will be the same as the potential average rate (5)

* Formula 1: Potential Average Single Rate
• Computed as a weighted average
• Multiplying the number of rooms in each room type category by its single room rack rate and dividing the sum total by the number of potential single rooms in the hotel

* Formula 2: Potential Average double Rate
• Weighted average
• Multiplying the number of rooms in each room type category by its respective double-room rack rate and dividing the sum total by the number of potential double rooms in the hotel

* Formula 3: Multiple Occupancy Percentage
• Important element in determining yield statistic is the proportion of the hotel's rooms that are occupied by more than on person - the multiple occupancy percentage
• Indicates sales mix and helps balance room rates with future occupancy demand

* Formula 4: Rate Spread
• Important to yield statistics
• Rate spread essential to the use of yield decisions in targeting a hotel's specific market
• Mathematical difference between the hotel's potential average single rate (1) and potential average double rate (2)
• Rate Spread = Potential Average Double Rate - Potential Average Single Rate

* Formula 5: Potential Average Rate
• Combines the potential average rate, multiple occupancy percentage, and rate spread
• First step involves multiplying the rate spread by the hotel's multiple occupancy percentage. The result is added to the hotel's potential average single rate to produce a potential average rate based on demand (sales mix) and room rate information

* Formula 6: Room Rate Achievement Factor
• Achievement factor (AF) (rate potential percentage): The percentage of the rack rate that the hotel actually receives
• Dividing the actual average rate the hotel is currently collecting by the potential average rate
• Actual average rate equals total rooms revenue divided by either rooms sold or rooms occupied
• Equal to 100% minus the discount percentage
• Management discovers how much its actual room rates varied from established rack rates
• Achievement factor can be used in one method of determining the yield statistic, but yield statistic can be determined without it
• Allows management to monitor and better control use of discounting

* Formula 7: Yield Statistic
• Incorporates several of the previous formulas into a critical index
1.
2.
3.
• First equation is used for a hotel that offers all its rooms at a single rack rate, regardless of occupancy
• When a hotel uses more than one rack rate for different room types (more common), potential rom revenue equals total room nights available times the potential average rate
• Complimentary rooms must be treated in the achievement factor the same way they are treated in the occupancy percentage

* Formula 8: RevPAR
• Instead of computing yield as a percentage, some lodging operations prefer RevPAR
• RevPAR = Occupancy Percentage X ADR

* Formula 9: Identical Yields
• Calculations of different combinations of occupancy and actual average room rate may result in identical room revenue and yield statistics
• Identical yields do not generally represent identical operating structures
• A higher occupancy percentage may result in greater total (room and non-room revenue)
• Hoteliers favor an intermediate position regarding associated operating costs and total revenues collected
• Judging which scenario is best requires property-specific criteria and management evaluation

* Formula 10: Equivalent Occupancy
• Use when you want to know what other combinations of room rate and occupancy percentage provide equivalent net revenue
• Takes marginal costs into account by incorporating gross profit or contribution margin
• Cost per occupied room (marginal cost) of providing a room is the cost the hotel incurs by selling that room. This cost would not be incurred if the room were not sold (as opposed to fixed costs)
• Contribution margin: portion of the room rate that is left over after the marginal cost of providing the room has been subtracted out.
• Does not need to match its gross revenue to achieve the same net revenue, since, by selling fewer rooms (at the higher price), it incurs fewer associated operating costs
• Discount grid can help management to evaluate room rate discounting strategies
• Superiority of the equivalent occupancy formula because it's more accurate and useful

* Formula 11: Required Non-Room Revenue per Guest
• Equivalent occupancy and yield statistics fail to account for changes in net non-room revenue due to changes in occupancy
• A manager wanting some clear indication of whether a change in room rate will render more than an offsetting change in net non-room revenue may find an answer using breakeven analysis
• Approach involves calculating or estimating a number of elements:
• The net change in room revenue due to room rate changes
• Amount of net non-room revenue need to offset any reduction in net room revenue or the amount of net room revenue needed to offset any reduction in net non-room revenue
• Average amount each guest spends in non-room revenue centers
• Change in occupancy is likely to result from room rate changes
• Package plans are priced competitively to attract guests, but the internal distribution of revenue should be designed to maximize profits
• Weighted average contribution margin ratio (CMRW) for all non-room revenue

• Knowing the CMRW and the average amount that guests spend in non-room revenue, and having estimated the probable change in occupancy, the FOM can determine whether the net change caused by higher or lower room rates is likely to be more than offset by the net change in non-room revenue

• FOM can compare the result of this equation with the actual average non-room spending per guest
• If number is higher than average non-room spending per guest, hotel is likely to lose net revenue. If it is lower, hotel is likely to increase its net revenue through discount
• Breakeven analysis can also be used to examine the net effects of a room rate increase
• When room rates are increased, occupancy percentage generally falls
• An increase in price may reduce room sales and non-room revenue may also decline with occupancy decline, so price increase would hurt the hotel's financial position
• Even though net room revenue goes up, total net revenue may still drop if occupancy decline reduces net non-room revenue by an amount greater than the net-room revenue increase

* RevPAG and GOPPAR
- RevPAG
• RevPAG measures total revenue, but uses the number of guests as a critical variable
• Determines the average revenue earned for each guest staying at a hotel
• Most useful in hotels with multiple revenue outlets
• Highlights the overall revenue derived per guest and is a more comprehensive measure than a per room figure
• Identify areas in which the hotel is not capturing expected revenue
• Difficulties
• RevPAG might not be an effective measure for properties with limited revenue opportunities and may also produce somewhat distorted results for hotels with frequent short guest stays
• RevPAG is dependent upon the number of guests, it is difficult for comparisons with other hotels, especially when double-occupancy percentages can vary significantly between similar properties

- GOPPAR
• More sophisticated since it deals with gross operating profit
• Advantage of incorporating departmental expenses, not just revenue, resulting in a measure of GOP, which represents the mathematical different between departmental revenues and expenses
• By dividing the GOP by the number of rooms available for sale, management can obtain a measure of profitability for the property
• Purpose is to quantify the hotel's profitability per available room
• Use to determine a hotel's financial value if owner is interested in re-financing or selling
• If the hotel does not properly control expenses, all of its effort to maximize revenue will not produced profitability
• Difficulties
• Difficult to recognize as an industry-wide metric since hotel profitability information trends to be proprietary and confidential; usually only top-level managers and owners are privy to profitability info
• Not timely; it may take one month after the close of business to calculate GOPPAR for an accounting period

What elements must be included in a successful revenue management program?

* Elements of Revenue Management
• Flexible room rates affect both the number of guests and associated revenue transactions
• Focusing attention only on room revenue potential may not present a comprehensive overview
• Revenue management becomes complex when room rate discounting is granted on a selective rather than general basis
• Offers discounts to certain categories of guests
• Decide whether to accept or refuse group business at a discounted rate
• Elements must be included in the development of a successful revenue management strategy:
• Group room sales
• Transient room sales
• F&B activity
• Local and area-wide activities
• Special events
• Practice changes from property to property and season to season

1. Group Room Sales
• In most hotels, groups form the nucleus of room revenue
• Common to receive group reservations from three months to two years in advance
• When request comes in, sales or catering managers must research and document the request and present to the hotel's revenue meeting.
• Questions to be asked
• Does the group request fit into the hotel's strategy for the period?
• Are there other groups who are interested in the same period?
• What meeting space will the group require?. Is it proportionate to number of guestrooms?
• What impact will this group have on booking additional group business for same dates?
• What is the group willing to pay in room rate?
• Do F&B functions include catered events/hotel's restaurants?
• What revenue can hotel plan to earn for rooms, F&B, etc?
• Collect as much group profile information as possible including:
• Group booking data
• Group booking pace
• Anticipated group business
• Group booking lead time
• Displacement of transient business

- Group Booking Data
• Management should determine whether the group blocks already recorded in the reservation should be modified because of anticipated cancellations, historical overestimation of rooms needed, greater demand than anticipated
• Management can adjust expectations by reviewing the group's booking history
• Groups tend to block 5-10% more rooms
• Deletion of unnecessary group rooms is called the wash factor
• Must be careful because hotel may end up overbooked

- Group Booking Pace
• Group booking pace: the rate at which group business is being booked (booking refers to the initial agreement between the group and the hotel)
• Identify a historical trend that reveals a normal booking pace for each month of the year
• Can become complicated due to unanticipated fluctuations
• Variations should be noted
• Maintain a straightforward method for tracking group booking pace

- Anticipated Group Business
• Most national, regional, and state associations, and corporations have policies governing the locations of annual meetings
• Even when it goes to other hotels, group may displace other group and non-group business that will need to find alternate accommodations in the area
• Forecast the pressure in the market and adjust selling strategies
• Tentative bookings that await final contract negotiations should be included in the revenue management analysis

- Group Booking Lead Time
• Booking lead time: measures how far in advance of a stay bookings are made
• Corporate group bookings tend to be smaller and are often made within a year of the planned event
• Larger association meetings may book two to five years in advance
• Management should determine lead time for group bookings so that booking trends can be charted
• Booking trends can be combined with booking pace information to illustrate the rate at which the hotel is booking group business compared with historical trends
• Information is important when determining whether to accept an additional group and at what rate.
• If the current booking pace is lower than expected, may offer a lower room rate to stimulate increased occupancy
• If demand is strong and booking pace is ahead, it may not be appropriate to discount room rates
• Catering sales must also be taken into consideration when looking at booking lead times (i.e. booking a prom would block off potential destination weddings)

- Displacement of Transient Business
• Management should consult its demand forecast when determining whether or not to accept additional group business
• Displacement occurs when a hotel accepts group business at the expense of transient guests
• Transient guests (aka FIT - free independent nontraveler/non-group) often pay higher room rate and may be more likely to use hotel dining rooms
• Several factors help determine whether a group reservation should be accepted
• Look at revenue factors: should only be accepted if the expected revenue gain offsets the transient guest revenue loss
• What happens to the transient guests who cannot be accommodate frequent or first-time guests
• Turning away group business may reduce future business
• Non-group guest wishing to come in on Tuesday for three nights will be taken away if the group is taken on Thursday; affects Tuesday and Wednesday as well
• Keeping track of a group's history can help re-allocate group rooms to transient
• By knowing each group's wash factor, a manager can safely release the excess rooms from the block
• Might contact other hotels where group has previously stayed to try to determine its wash factor

- Dynamic Packaging
• Dynamic packaging: customization of a travel package according to a specific guest's needs
• Static packages often came with many associated restrictions, such as limited length of stay and limited day of arrival with no substitutions. Guests had to pay for something they did not intend to use.
• Dynamic packaging addresses the issue of preferred contents
• Guests can use an Internet booking engine (brand website, property website, airline website, third-party travel) to create a custom package
• Increase perceived value of a hotel package and to be more satisfying for the traveler
• May include airline tickets, hotel guestrooms, car rental agreements, recreational activities, sporting events, dining certificates, spa offerings, entertainment tickets, and other hospitality-related components
• Participating hotels offer hotel rooms at specific rates for a series of dates to Internet website representatives
• Hotels find dynamic packaging especially effective during anticipated low periods
• Better chance of promoting business since customized travel package simplifies the booking process
• As occupancy increases hostel can either increase available room rates or withdraw rooms from inventory previous committed to the packaging program
• Offers opportunity for upselling

* Transient Room Sales
• Transient business is usually booked closer to the date of arrival than group
• Monitor the booking pace and lead time of transient business to understand how current reservations compare with historical and anticipated rates
• Leads to room rate discounting
• Many other reasons to price rooms differently: location, desirability, or size and charge a premium for better rooms (smaller, near noisy corridors, or unrenovated, less desirable views may be cheaper; desirable rooms classified as deluxe with higher room rates)
• Offer deluxe rooms at standard rates in times of low demand
• As demand improves, any remaining deluxe rooms can be offered at or near full rack rate
• Maximize room revenue, not just average room rate or occupancy percentage
• Lower demand creates a more competitive situation
• Discounting may reduce amount of business lost because of rate resistance and allows the hotel to sell rooms that might otherwise remain vacant
• If room rates are increased too soon, occupancy may be lost but if room rates are increased too late, some rooms may be sold for less than they could have been sold for
• When discounting a deluxe room, agent should tell the guest that he or she is being upgraded because it will add perceived value and reduce confusion
• Ethics of revenue management
• Unethical to sell the room at a rate higher than its rack rate just because someone may be willing, even though demand may provide opportunity for a higher rate
• Charging the rate is not always a good business practice, which is why many states require room rates be posted in each room
• Discounting offered to certain sources of business apply to a substantial portion of a hotel's business. May offer discounts to guests booking through the Internet because of lower costs associated with it.
• Controlling discounts is crucial to producing an optimal yield. When the FOM believes that rooms can be sold at a higher rate without an offsetting loss in occupancy the discount should be closed.
• Some discounts cannot be closed off
• Whenever possible, contracts for discounts should provide for flexibility when business conditions warrant.
* Other Revenue Opportunities
• Revenue management decisions for hotels that offer additional revenue outlets involve more than what to charge as an appropriate room rate as there are more revenue opportunities to evaluate
• Revenue management analysis must consider all revenue opportunities affecting potential profitability to determine the economic value of the total business to the hotel
• Only after such analysis can management calculate a meaningful room rate
• While banquet functions generate F&B revenues, they might also affect guestroom revenues; in most instances, the group requiring both catering and guestroom space will produce more profit
• When considering what rates to charge people attending a meeting at the hotel, consider all revenue opportunities, as well as the profitability each of these opportunities would provide
• To determine the price to charge, determine the potential revenue (or profit margin) for each affected department.
• If the meeting's revenue (or profit margin) exceeds the budget amount, a favorable decision is appropriate, and managers should develop a written agreement with the meeting planers
• Meeting planners may request concessions from hotel management
• Concession: some sort of improved value for the meeting; includes items that would lower the expense of the meeting from the planner's perspective
• May include the cost of meeting space and/or reductions, and request a VIP suite
• Others involve reduced guestroom rates, discounts on meeting room rental, F&B, and audiovisual rental
• May request complimentary items
• Represent a loss in revenue or an increase in expense
• Low- or no-cost items must be individually negotiated before hotel determines a fair value for the meting
• Will not accept banquet-only business during a projected high-demand period until the group's banquet-only booking date draws near
• Look at hotel's room sales history

* Local and Area-Wide Activities
• Can have dramatic effects
• Transient guests and smaller groups displaced by the convention may be referred to the hotel (as an overflow facility)
• FO should be aware of the convention and the demand for guestrooms
• If the demand substantial, transient and group rates may need to be adjusted
• If significantly altered, the FOM should immediately investigate. An increase in demand could indicate a major group cancellation at a competitive property, now reducing its regular pricing.
• Appropriate and legal for competitors to occasionally meet and discuss general business trends
• Not legal to discuss room rate or establishment (fixing) of room rates
• May be additional f information that identify what is affecting business in the area

* Special Events
• Special events are often held in or near a hotel
• Demand enhancing activities by restricting room rate discounts or requiring a minimum length of stay
• Required to guarantee a four-or-five numerous minimum standards
• Does not alienate frequent travelers

Describe fair marketing share forecasting

• Fair market share: understanding how well the hotel is doing in relation to competition
• Important to know whether the rates being quoted are competitive and whether the hotel is actually getting its fair share of the available business
• STAR report is historical so it provides management with introduction
• Key statistic in STAR is the RevPAR index, tells whether the property received its fair share of some businesses, and for the period reported compared its competition or competitive set.
• Since RevPAR takes both occupancy and rate, a hotel may have a lower rate of occupancy than its competition but still have a higher RevPAR Index, because it maintained a higher average
• Analyzed whenever the STAR report arrives but also used for forecasting the next several months and the same period next year.
• Used to position rates for a coming month, or develop next year's budget, by season
• Shows opportunities for rate improvement or provide an indication of necessary rate repositioning
• STAR report should not be the only source of information on which to base decisions because of variables such as new competition in the market
• STAR report tends to be historical in nature
• May not accurately reflect the success of a hotel's revenue strategies in the short term
• Hotels may experience a one- to two-month delay in performance due to variable market factors
• Solid basis for trend analysis because it aggregates three months or more for each reporting period
• Longer-term reports tend to provide a better indication for revenue management successes
• Other trade resources (e.g. TravelCLICK produces a series of reports including Hotelligence, Internet Hotelligence, and RateVIEW/Phaser) based on information collected from a diverse set of sources are considered forward-looking since they are built on actual reservation transaction data

What skills must a revenue manager have?

• Good revenue manager can mean the difference between a cost-effective hotel and a profitable hotel
• When considering what rates to apply to a group, the revenue manager typically considers the total revenue projection for the group (rooms, F&B, audiovisual rentals) in a final rate quotation
• Revenue manager must have an overview of the entire hotel's revenue structure and the guests who make up the majority of the business
• In hiring a revenue manager, best to start with a job description, which varies among different types of hotels
• Successful hotel revenue manager possesses:
• Operational skills: experience in one or more revenue-generating hotel departments; understand sources of revenues and associated cost structures; be aware of the interdependencies among departments to meet hotel goals
• Analytical skills: understand historical, current, and future revenue data. Evaluate hotel booking trends and project occupancy demands when determining pricing strategies that balance room rates and levels of occupancy
• Strategic skills: understand the market and how market forces are likely to affect the hotel and how to take advantage of favorable market conditions
• Organizing skills: maintain detailed records of current operations to develop a database of information for future
• Communications skill: explain revenue processes and decisions with respect to short-term and long-term business projections
• Good listening skills: listen to revenue management team members, hotel department heads, and other staff; appreciate issues and suggestions by others
• Team-building skills: build consensus among the revenue management team and hotel department heads and staff; build and maintain trust and confidence in working relationships
• Training skills: ongoing training of all those involved in the process; train staff at all levels of the organization, including general manager, FOM, sales, F&B manager, reservations manager, banquet managers, and others actively involved in program
• Patience: make revenue manage decisions 3, 6, 12 months or more before the dates they actually affect; be patient and not change strategies too quickly in reaction to unforeseen changes in hotel or marketing conditions; be patient with staff as they learn the roles they place in program
• Creativity: look for new data sources and ways to implement RM techniques
• Cooperativeness: insightful and be able to solicit information rom department heads; managers more likely to support strategies and tactics they help create and implement
• Flexibility: willing to change strategies and tactics as demand changes

What are the various types of revenue meetings? Who attends? What is discussed?

• Regular revenue meeting to share important business information
• Common mistake is to consider revenue management a short-term process
• Successful RM looks months or years into the future, tracking trends and guest demands
• Especially is group-oriented hotels as changing rates within a few weeks of arrival may improve ADR or RevPAR, but the real impact is made when the group is booked and rates are confirmed
• Team includes representatives form key areas: GM, sales and catering, reservations manager, revenue manager, other managers may attend periodically (FOM, F&B, catering)
• Acts as satellite agents for implementing a revenue management plan
• Determine whether past forecasts were accurate and alert revenue manager to significant patterns in group or transient behavior
• Develop action plans for interdepartmental communication
• With accurate forecasts in hand, departments can prepare:
• Knowing how many guests are in-house can help F&B
• Rate changes and adaptations in selling strategy affect sales
• Occupancy affects housekeeping and uniformed services

* Daily meetings typically last 15 minutes
• Reviews three-day forecast and confirms strategies and tactics; communicate strategies/tactics to reservations, central reservations office, and front desk
• Reviews previous day's occupancy, room revenue, ADR, and yield statistics
• Available through night audit reports
• Variances from forecast should be discussed
• Reviews booking pace for near-term business (within 3) months
• Team must know if the hotel is where it should be in the number of rooms and rooms revenue
• Booking pace is compared to the day-to-day increase of business planned
• Group booking pace may be checked weekly or less frequently for business further into the future
• Reviews old business; sometimes more research is necessary before a revenue decision can be made
• Presents new business
• Transient business changes daily, especially within a week of arrival (true in all hotels)
• Monitor transient demand closely and present important changes
• Review rates and strategies
• Plans should be set in advance for each day management believes an opportunity may arise to change rates (if plan is that at 90% occupancy, discounts are not offered, when we hit 90%, they should follow plan)
• Discusses last-minute adjustments
• What information must be circulated
• Reviews the 30-60 day outlook and any updates
• Reviews current channel distribution strategies

* Weekly meetings might last an hour
• Review forecasts for 30, 60, 90, and 120 days out
• Discuss strategies for upcoming critical periods

* Monthly meetings
• Discuss issues that affect the big picture
• Look at slow months and determine how to boost sales (marketing, locals, special sales force deployment)
• Review ongoing annual forecast
• Provide revenue management training
• All elements of revenue management should be viewed together when making a decision, a failure to include relevant factors may render efforts less successful
• Yield statistics should be tracked daily
• Tracking yield statistics for an extended period of time can be helpful to trend recognition
• Track yield statistics for future days
• Future period calculations must be done every business day, depending on how far in advance the hotel books its business
• Each group sales contract should be reviewed individually
• Compare contracts with historical trends and budgets
• Sales managers must make a group rate recommendations, which should be compared with the budget and forecast
• If proposed rates fall below expectations, there must be a good reason
• Hotel usually has a group sales target or budgeted figure for each month, so each group should be examined to see if it will contribute to meeting the overall profit budget (perhaps F&B functions)
• If transient demand Is strong, they may not want to book the group
• Review actual group booking pattern already on the books
• May solicit a lower-revenue generating group to fill gaps between busy days
• When close to fulfill group rooms goals, consider reservation's effect on transient business; if group wants hotel, it may need to be quoted a higher than normal group rate to make up for revenue lost through the displacement of transient guests
• Transient business: if hotel only has deluxe rooms left,, it should sell deluxe rooms at standard rack rate to remain competitive
• Tracking business by revenue source helps determine when to allow discounted room rates
• As various sources are identify, analyze its impact on total revenue
• Example: FOM will authorize discounted room rates for customers if group has potential to generate repeat customers

How can you get the staff involved in revenue management?

• Create a sense of competition
• Post measurable, specific goals (i.e. budgets or occupancy) that are challenging, yet attainable
• Show staff how much they each affect the bottom line as when they understand their role, they are more likely to support your efforts
• Provide incentives or recognition for goal attainment; seek and provide feedback; coach
• Train staff; show them exactly what you expect; follow up to ensure standards are met

What are high-demand, low-demand, and excess tactics?

• During times of high demand, increase room revenue by maximizing average room rate
• Transient business tactics used during high-demand periods
• Try to determine the right mix of market segments to sell out at the highest possible room rates. This is dependent upon accurate sales mix forecasting.
• Monitor new business bookings, and use changed conditions to reassign room inventory. Certain inventory may be assigned to specific market segments. Management must closely monitor demand and be flexible in adjusting room rates. Rooms can always be sold for less than their posted rack rate.
• Establish a minimum number of nights per stay to better control occupancy fluctuation
• During a high-demand period, when deciding between two or more competing groups, select the group that produces the highest total revenue
• Sell blocks of guestrooms to groups that also book meeting space, F&B service, and hospitality suites
• Group that books ancillary space and services is likely to spend more time and money in the hotel
• Restrict access of local patrons to function, meeting, and public spaces as if locals book these spaces, more-profitable groups needing such space may be forced to go elsewhere.
• Offer price-sensitive groups dates when the hotel's occupancy is expected to be low
• During low-demand period, increase revenue by maximizing occupancy
• Design a flexible rating system that permits sales agents to offer lower rates in certain situations; determine these rates early in anticipation of low-demand periods
• Ensure all Internet distribution channels have current rates and availability dates; improve listing in distribution channels by paying for an improved search engine ranking or buying a banner advertisement
• Accurately project expected market mix; this precision will influence the eventual yield statistic
• Monitor group bookings and trends in transient business. Do not close off lower rate categories and market segments arbitrarily
• As low occupancy periods become inevitable, open lower rate categories, soliciting business from the local community
• Maintain high room rates for walk-in guests; they present an opportunity to increase the average rate through top-down upselling techniques
• Non-financial tactic involves upgrading guests to nicer accommodations, which may lead to increased guest satisfaction and enhanced guest loyalty
• Risk: may expect the same upgrade on future stays, explain that this is a special, one-time upgrade because the hotel appreciate's the guest's business

* High-Demand Tactics
1. Close or restrict discounts
2. Apply minimum length of stay restrictions carefully
3. Reduce group room allocations
4. Reduce or eliminate 6 PM holds
5. Tighten guarantee and cancellation policies
6. Raise rates to be consistent with competitors
7. Consider a rate raise for packages
8. Apply full price to suite sand executive rooms
9. Select close to arrival dates
10. Evaluate the benefits of sell-throughs: (sell-through is when one day has a peak in occupancy and management does not want the peak to adversely affect reservations on either side of the peak day; the required stay can begin before the date the strategy is applied;)
11. Apply deposits and guarantees to the last night of stay (minimize early departures)

* Excess Demand Tactics
• Apply high-demand tactics
• Understand the cause of excess demand

* Low-Demand Tactics
1. Sell value and benefits (rather than just quoting benefits)
2. Offer packages
3. Keep discount categories open
4. Encourage upgrades
5. Offer stay-sensitive price incentives
6. Remove stay restrictions
7. Involve your staff (incentive contest to increase occupancy)
8. Establish relationships with competitors (help with referrals and cross-marketing)
9. Lower rates

What revenue strategies must be applied cautiously?

• Applying restrictions too rigidly can discourage business
• Ultimate goal is to meet guests' needs
• Too much revenue management can be just as ineffective as none at all
• Four tactics that must be applied cautiously:
1. Hurdle rate
2. Minimum length of stay
3. Close to arrival
4. Sell-through

1. Hurdle Rate
• Rack rates are always left open, whether demand is high or low
• FOM must set the lowest rate for a given date based upon anticipated demand
• Hurdle rate: rates that fall below this demand will not be offered
• Any room rate above the hurdle rate is acceptable, any rate below should not be offered
• Hurdle rates fluctuate day to day, depending upon desired yield and market conditions
• Incentives are offered front desk and reservations agents for selling rooms above the hurdle rate
• However, while they are building incentive points, they may actually be turning away business
• Stay-sensitive hurdle rate: incentives may also be provided for longer guest stays
• Agents may receive incentives for booking a three-night stay, even at a lower rate
• Communicating hurdle rates can be done:
• Posting the rate strategies in the reservations office and at the front desk
• Some computer systems automatically display acceptable rates only
• Essential that reservation information be kept current
• Revenue strategies can change several times a day and all front desk/reservation agents must know when change occurs

2. Minimum Length of Stay
• Minimum length of stay strategy requires reservation must be made for at least a specified number of nights before it will be accepted
• Develop a relatively even occupancy pattern
• Common for resorts to use during peak occupancy periods
• Hotels may use it during special events or high occupancy peaks
• Intended to keep an occupancy on one day from reducing occupancy on the days before and after the peak
• With a strict minimum stay requirement, guests may take their business elsewhere
• Apply only when it will encourage additional business rather than frustrate guests
• Check denials and regrets on a daily basis
• Minimum lengths of stay can be applied with discount rates (i.e. pay rack rates for shorter stays)

3. Close to Arrival
• Close to arrival strategy allows reservations to be taken for a certain date as long as the guest arrives before that date
• Guest arriving before the date and staying through the date will be accepted, but additional arrivals on the peak arrival date will not be accepted
• Track number of reservations request denied due to this

4. Sell-Through
• Sell-through strategy works like a minimum length of stay requirement except required stay can begin before the date the strategy is applied
• For example, if a three-night sell-through is applied on Wednesday, the sell-through applies to arrivals on MTW, arrivals on each of those days must stay for three nights in order to be accepted
• Especially effective when one day has a peak in occupancy and management does tto want the peak to adversely affect reservations on either side of the peak day
• Overbook the peak day
• Days before and after the peak may have reduced occupancy because the peak may block extended stays
• Room availability strategies can be used together with room rate strategies

What are the benefits of revenue management software?

• Most efficient way to handle data and generate yield statistics is through revenue management software
• Can integrate room demand room price statistics to simulate high-revenue-producing product scenarios
• Does not make decisions, merely provides information and support
• Computer can store, retrieve, and manipulate large amounts of data on a broad range of factors influencing revenue
• Create models that show probable results of decisions
• Based on historical data, forecasts, and booked business

* Observed the following results of implementing computer-based revenue management:
• Continuous monitoring
• Consistency: respond to specific changes in the marketplace with specific corporate/local rules
• Information availability: provide improved management information to help managers make better decisions more quickly
• Performance tracking: analyze sales and revenue transactions to determine how well goals are being achieved

* Revenue management software can generate special reports:
• Market segment report: provides information regarding guest mix; effective forecasting by market segment
• Calendar/booking graph: presents room-night demands and volume of reservations daily
• Future arrival dates status report: furnishes demand data for each day of the week. Provides forecasting information that enables the discovery of occupancy trends by comparative analysis of weekdays. Covers several future periods
• Single arrival date history report: indicates hotel's booking patterns (trends in reservations)
• Weekly recap report: indicates sell rates for rooms and the number of rooms authorized and sold with special and/or discounted rates
• Room statistics tracking sheet: tracks no-shows, guaranteed no-shows, walk-ins, and turn-aways

What is the role of the F&B division?

• 1/3 of the revenue in an average hotel comes from F&B, but F&B contributes less than one-fourth of the property's actual profits
* F&B mission:
• Adequate profit
• Provide F&B service within the hotel
• Support the role of the hotel in the community
• Good F&B operation can give the hotel a distinct competitive advantage and may help to justify an increase in average room rates, and may help keep occupancy high

What are some misconceptions about food service?

* "Hire good chefs and leave it to them."
• The chef is an important member, but there are other equally important players. A complete team is necessary for successful F&B.

* Good F&B managers are "born"
• People who are interested in F&B operations and who like to meet people are likely to succeed if they are committed to the job.
• Success of an F&B operation corresponds directly to the time and effort the manager gives to it

* "Necessary evil"
• Every well-run F&B division does make a profit

* Must be a loss-leader to attract rooms business
• A poorly run F&B division actually detracts from overall business
• If manager runs F&B division at a loss, he generally does not have the skill to runt he rooms division at a profit either

What are the 5 E's of food service?

• For every 10 restaurants that open, one will be open and making a profit after five years
• Hotel restaurants do not go out of business with such frequency because the convenience of a restaurant to hotel guests keep it going
• The operating profits of restaurants in hotels are less than independent hotels
• Five E's (although not all-encompassing):
• Excellent environment
• Excellent service
• Excellent F&B products
• Excellent value
• Excellent management controls

1. Excellent Environment
• Starts with a good location: easily accessible location accounts for half of an operation's success; must be located near a community or near important intersection
• Guests are concerned about building and grounds, especially its cleanliness, restrooms, and outside environs. Attention to these areas create repeat business
• Theme: mood that enhances dining pleasure. Created by coordinating the decorations, the menus and menu covers, food server uniforms, silver, china, glassware, linens, and type of food/service.

2. Excellent Service
• Wanting to return to a restaurant because you feel welcome
• Primarily a matter of attitude
• Begins with management: manager must be dedicated to giving friendly service and is courteous to employees and guests, this encourages the employees to be friendly and make guests feel welcome
• One of manager's most important jobs is to have a continuing training program: Few people can continually smile and be friendly unless they are trained and encouraged to do so
• Different requirements for excellent service
• Employees must try to recognize the importance of guests
• When practical, manager should learn guest's names and stop by tables for polite conversation
• If problem arises, personal attention from manager can often resolve it, and the guest will leave happy.

3. Excellent F&B Products
• Excellent food is a comparative matter: as long as food tastes better, looks better, and receives favorable comments
• Purchase excellent products, store them properly, prepare the food according to proper standard recipes, control costs, package attractively, and satisfy guests with quality service

4. Excellent Value
• Talk to guests to see if the got their money's worth
• Repeat business is vital
• Repeat guests mean your restaurant gives excellent value
• A low-check-average restaurant may lose guests if they feel the food and service is not worth it
• Excellent value is in the mind of the guest
• May relate to size and cleanliness of the parking lot, the restrooms, the general appearance of the restaurant, the dishes on which food is served, the friendliness of the servers, the price of the food and beverages
• Value may be the manager chatting with them

5. Excellent Management Controls
• Managers must practice excellent supervision and accounting control
• Must give the necessary personal supervision and ensure that operation meets desired standards
• Controls necessary to yield competitive prices; to ensure what is purchased is received and that what is received is properly stored and issued; products are prepared and served properly; all income is collected, all money is deposited in the bank and all bills are paid
• Ensure there is a budget and costs do not become excessive, if they do, take corrective action quickly

What are the food service subsystems?

• Many distinct, but closely related subsystems or control points that must be managed
• Includes: menu planning, purchasing, receiving, storing, issuing, producing, and serving

1. Menu Planning
• Food service management begins with the menu
• Menu dictates what resources are needed and how they must be expended
• Most powerful marketing device
• Most important, but least understood
• Difficult to develop an entire marketable and profitable menu
• Determine who the guests are, how large the market is, and where potential guests are located
• Define the types of food, beverage, and service these guests want
• Consider the location of the property, transportation and parking facilities, special concerns of the operation, and the competition
• Large chain organizations typically have marketing personnel
• You may also hire a consultant
• Develop a customer survey, create a menu, and get it designed and printed
• Work with the chef and others in standardizing recipes and in training the staff in the proper preparation and service of the products
• Emphasize marketing concerns and the guest while recognizing budget
• When deciding whether to offer a wide or narrow range of items, be mindful that as the number of items increases, a wider variety must be purchased, received stored, issued, and managed.
• Menu affects a large number of resources, and these impose constraints:
• Labor: adequate number of qualified employees with skills to produce all items
• Equipment: available to produce all items required
• Space: square footage for all equipment and for receiving, storing, serving, clean-up
• Layout and design: affects space and equipment necessary for efficient production
• Ingredients: readily available at costs that support anticipated product selling prices
• Time: timing of food production and service
• Cost implications: equipment, space, personnel, and time concerns, utilities, and supplies. Guard against incorporating additional, unsupported costs by making unwise menu decisions
* Priority Concerns of the Menu Planner
• Guest
• Wants and needs
• Concept of value
• Item price
• Object of property visit
• Socioeconomic factors
• Demographic concerns
• Ethnic factors
• Religious factors
• Quality of item
• Flavor
• Consistency
• Texture/form/shape
• Nutritional content
• Visual appeal
• Aromatic appeal
• Temperature
• Cost
• Availability
• Peak volume production and operating concerns
• Sanitation concerns
• Layout concerns
• Equipment concerns

2. Purchasing
• May be purchased by F&B manager or by a purchasing agent in purchasing
• No amount of skill can make up for food that is of poor quality to begin with
• Excellent food depends on excellent purchasing judgment
• Control of food costs begins with purchase, as profits lost here cannot be recalled
• Purchaser cannot judge food items by price alone, but price must be an important consideration
• To make wise purchasing decisions, consider:
• Property's financial goals and how purchasing decisions will affect them
• How much food is needed to prevent both stock-outs and overstocking
• How items will be prepared and presented
• What guests expect from the F&B operation

3. Receiving
• Receiving clerk is a member of accounting, independent of F&B and is responsible only to the controller
• Clerk receives and controls merchandise without being influenced by anyone else
• Best means of reducing dishonesty in the purchasing system
• F&B should not be received by same person who does purchasing, when receiving clerk reports to F&B manager, there is opportunity for dishonesty
• Receiving functions have often been neglected, needs a well-paid and trained person
• Receiving area should be located between the property's receiving dock and the storeroom so that the receiving clerk can see everything that goes in/out
• Should be equipped with an adequate floor scale and a small table scaled
• Complete set of purchase specifications help in checking incoming merchandise
• Tools to open boxes and to check crates
• Receiving clerk's daily report
• Itemizes invoice and indicates if its charged to that day's account for immediate use (food direct) or to the food storeroom (food stores)
• Should be completed each day, totaled, attached to the invoices that should accompany all incoming merchandise, and sent to F&B controller for auditing
• Each invoice should be initialed by GM and sent to accounting for payment
• Receiving clerk's office should be equipped with a credit memorandum form and a form that can be used for recording merchandise received without invoice
• Ensure property pays only for items actually received
• Incoming items be weighted, counted, or measured to ensure orders are complete
• Verify that the times being delivered were in fact ordered and that they match the property's purchase specifications
• Analysis should occur before delivery invoice is signed
• Receiving clerk should quickly move all items to their proper storage areas to reduce theft and losses in product quality
• Never permit delivery people to move products into inventory
• Limit access to storage areas
4. Storing and Issuing
• Storeroom may be under the direction of the purchasing agent, or under the steward in smaller operations
• Controller should be responsible for the internal control system and for accounting for products that go into and out of the storeroom
• Entire storage area should be protected with locks; there should only be one entrance
• Only one person should have the key to the liquor storage area (separate from food storage area) to be accountable for all the merchandise in that area
• Area should be clean and properly lighted
• Merchandise should be stored off the floor
• Unpacked merchandise on shelves should be kept to a minimum
• Regular storeroom hours should be adhered to
• F&B storeroom should be inspected every day by F&B manger, chef, or GM
• A properly authorized requisition should be required before merchandise is issued from the storeroom
• Every item in the storeroom should be priced with a marking pencil for inventory purposes
• Month-end inventories are responsibility of accounting
• Perpetual inventories should be used for expensive and theft-prone items
• Perpetual inventories: provide a running balance of the quantity of items in stock. As items are received, the balance is increased; as products are issued, the balance is decreased
• At the end of the month, accounting checks perpetual inventory balance against actual stock on hand and a list of overages and shortages should be prepared
• List of dead stock (items stored for more than a specified time) should be circulated monthly to the chef and F&B manager
• Storeroom keys must be tightly controlled
• Many properties use a log book that indicates to whom keys have been issued and how long
• When people with access to storeroom keys leave the organization, keys and locks should be changed

5. Food Production (Cooking and Holding)
• Food served must be as good or better than all nearby competing food service operations
• Producing and serving excellent food at a reasonable profit
• Proper management attitude
• Managers must want to serve excellent food
• GM must be interested in food
• Manager with the desire to offer quality food will motivate production personnel to prepare excellent food
• GM has some involvement in the day-to-day F&B operations, but most of the responsibility falls to the F&B manager and/or chef
• Today's top chefs are better kitchen managers, know how to control costs and merchandise foods, and have learned to work as a team with department heads
• The Executive Chef
• Responsible for all food production in the hotel or restaurant
• Oversees the entire kitchen operation and manages the food production and clean-up staff
• Includes preparing menus, working with the catering manager on banquet menus, and determining how much food is necessary to meet forecast
• Make sure staff purchase and issue the proper quality of food
• Keep payroll costs in line and contact other department heads
• Correct any breakdown in food preparation
• Can produce good food at the right cost
• Well-paid, similar or higher than the GM. Receive more money than the F&B manager. Command a high salary and bonus.
• Excellent food requires quality ingredients
• Food should be produced as close as possible to the time of service
• May have four or five restaurant outlets, plus 20 different banquets, so some food must be prepared in advance
• Do not "cook for the refrigerator" as although it may keep payroll costs down, it does not yield excellent food
• The use of convenience foods also has quality implications
• Difficult to keep the flavor and taste of convenience foods comparable to the same food cooked from scratch
• Many synthetic ingredients keep costs and down and maintain long shelf-life
• Synthetic foods may pose a health threat to people who are allergic to them
• Be wary of using synthetic flavoring or convenience foods and ensures quality and cost requirements can be met if used
• Proper cooking methods must be followed as food is produced
• Food should be properly cared for after it is prepared and before it is served
• Keeping food on the steam table too long reduces its quality; sanitation problems can also result
• Must be kept hot or cold for the shortest possible time before service
• Quality foods are prepared in small batches on an as-needed basis
• Production staff must have proper tools and equipment
• Measuring containers and other equipment must be available and in good working order
• Complete kitchen may consist of a range section (Stock kettles, ranges, broilers, grills, steamers, fry kettles, and roasting ovens), the garde-manger (cold food) sections; the pantry (salad) area; the butcher shop; the pastry shop and sometimes a bake shop; the scullery (dish and pot washing) areas; an employees' cafeteria kitchen; the banquet kitchen(s); and the room service kitchen
• In smaller operations, the garde-manger and pantry areas may be located in one section; butcher shop is often eliminated, and the pastry and bake shops are often combined or eliminated
• In a large hotel, each one of the kitchen production departments may be under the supervision of a department head, who works a shift and reports to the chef, either directly or through a sous (assistant) chef
• Kitchen personnel are often paid well and each year a more highly educated group is producing better food in less time.

6. Serving
• Management must establish and enforce minimum quality standards for employees in front-of-the-house areas
• Managers cannot rely on the employees' common sense to do the right thing at the right time
• Planning is necessary to identify required tasks and to develop procedures for effectively performing them
• Carefully consider the guest
• What is the type of service they expect?
• What does the guest desire, and how can the operation best provide?
• Supervision is necessary to ensure that shortcuts that violate standard operating procedures are not sued
• What things would I like or dislike about the serving procedures?
• Govern the development of SOPs and training programs
• Inspect facilities to ensure they are clean and safe, assign food server stations so that guests are served efficiently, properly communicate with and train service staff
• Ensure server stations contain the necessary products and supplies
• Develop sales income control procedures to protect the property and guests from dishonest employees, and schedule sidework (clean-up) duties
7. Catering
• Importance of catering is two-fold
1. Provide ballrooms and meeting rooms of various capacities to book group business
2. On-promises catering can be profitable as their small and large rooms are offered to in-house groups, local civic, and business groups, and weddings
• Catering maintains a close relationship with sales as the catering staff services what the sales team sells and books
• Catering offers considerable profit even though there are many days and nights when the function rooms are not used
• Attendance at each meal function is guaranteed, which allows food service and food preparation to plan, schedule, staff, and prepare for a set number of people
• Group also buys things like flowers, music, and entertainment
• Off-premises catering as become very popular with businesses and individuals when entertaining for pleasure, business, weddings, sporting events
• Catering by hotels has flourished
• Airline catering was significant, but after airlines experienced downtimes, they reduced their size or went out of business
• Independent caters operate by keeping their overhead low
• Office for sales purposes
• Arrange for independent banquet server
• Rent a kitchen from another caterer
• There are independent caters who maintain a kitchen and a staff of salespeople and draw their servers and captains from an on-call pool of trained, part-time servers

Describe the beverage department

• An exceptionally well-run food department can produce a departmental profit of 15-18% of sales
• A well-run beverage department can produce a profit of as high as 50% of sales
• Beverage department is an integral part of the property's financial and organizational structure
• Beverages alone often account for the entire profit of the F&B operation
• Historically, the general supervision of the beverage department was the responsibility of a wine steward (sommelier) , perhaps assisted by a head bartender
• Today the position has been renamed beverage manager, or director of beverage operations
• Day-to-day operation of the bars
• Reports to the F&B manager
• In small hotels, beverage manager reports to GM or F&B manager may operate beverage department
• In properties with union contracts
• The head bartender (who assists the beverage manager) works at the bars, sets up the banquet bars, and relieves bartenders when necessary
• Beverage manager cannot act as a bartender except in case of an emergency
• In non-union houses, especially in small operations, it is common for beverage manager to relieve bartenders for meals and other occasions
• Beverage purchasing responsibilities are assigned to the purchasing agent
• With beverage industry so closely regulated by the government and with all bottles of liquor and wine required to have a full disclosure of contents, the purchasing of this merchandise has been simplified
• Does not require high degree of skill
• Typically purchased by brand name from a supplier with exclusive distribution rights or from a state-operated store
• Few decisions to make after brand is chosen
• Basic ground rules
• Decision concerning brands must be based on what the guest desires
• Forcing a lower-than-desired quality drives away business
• Profit is so great it is unwise to use anything other than high-quality merchandise
• Well-known brand names will give guest confidence
• Highly advertised brand names may be more expensive, so management may consider taste tests and experimenting to measure acceptance by guest
• In some states, you may purchase private label merchandise, often of superior quality
• Some properties buy too many different brands and end up with funds tied over in a large inventory
• Inventory should turn over completely about once a month, depending on discounts offered for volume purchases
• Management approves a list of acceptable brands with a maximum and minimum quantity for each
• The receiving of beverages should be done by the receiving clerk under accounting
• Receiving clerk should be given a list of the merchandise expected to arrive and check it off as it arrives
• Beverage receipts may be written on a special receiving sheet or on the same form for food supplies
• Written in duplicate and totaled each day
• Attach to approve invoices and routed through management, purchasing, and accounting
• F&B controller should use duplicate of the receiving sheet for establishing perpetual inventory controls
• Large operations may use bin cards, which show receipts and issues to keep a running balance of merchandise; this serves as a basis for submitting a purchase request for additional supplies
• Supplies of liquor and wine should be stored separate from food and be issued only upon the receipt of a signed requisition in accordance with instructions
• Par stock should be maintained on all the bars; empty bottles should be returned to storeroom as a basis for bottle-for-bottle exchange when the bars are restocked (par: number of bottles decided to be behind the bar at the beginning of a shift in order to avoid run-outs)
• Keys to storage area should be in the hands of one person who is responsible for the security of all the merchandise in the storeroom
• Accounting should keep a perpetual inventory and take a physical inventory at the end of each month with the person responsible for the keys in the area
• Banquet beverage storeroom should be set up
• All issues to banquets should be made to this area from which merchandise can be issued to the various banquet bars and any liquor remaining from a banquet bar can be returned a recorded
• Banquet bar can operate with a par stock, and a daily banquet cost can be determined
• Important for a restaurant to be known for having a good bar
• Manager insist standard drink recipes be followed and proper measuring tools (jiggers and shot glasses) be used
• Head bartender must train and supervise bartenders to ensure no shortcuts, drinks are correct size, and fresh juices and ingredients are used.
• Obtain consistent quality of drinks is to prepare a bar operation manual
• Prepared specifically for the operation by the beverage manager and/or the head bartender
• Include all the standard recipes of the operation plus instructions about service, the glasses to be used, and how to merchandise certain drinks, as well as a complete wine list, instructions on banquet bar setups, and an outline of the internal control system
• The control system outline covers: accountability of bar checks, collection of money, accountability for cash and charges, register readings, and security measures

What are some beverage sales and promotions strategies?

1. Provide a training program for all bartenders and servers
• The more they know about products and merchandising, the grater the sales and profits will be
• Key beverage suppliers can assist in promotions, providing necessary ingredients from displays to staff training

2. Concern about drunken driving has halted certain types of promotions, such as happy hour
• Recognize the responsible and safe use of alcoholic beverages
• Alcohol awareness programs (employees and guests), designated driver programs, and merchandising no- or low-alcohol drinks

3. In-house marketing of house wine
• Expensive premium wines by the glass (equipment injects nitrogen into opened bottles, enabling high-quality wines to be kept for very long time periods)
• Package a bottle or a carafe of wine with banquet meals or with dining room meals where state laws permit
• Not simply asking, but suggesting the type of wine that would go well with an entrée

4. Have at least one or two specialty drinks
• Variation of some of the old standbys served in a specialty glass or container and in a manner to attract attention
• Attractively packaged with unique glassware and garnish
• Merchandised by the menu, tent cards, suggestive selling

5. To promote beverages, a short but interesting list of cocktails, beers, and wines can be available
• Long wine lists are useful for elegant, classical restaurants, but may overwhelm guests and discourage them for ordering, and it is hard to maintain complete stocks
• Long wine lists should be replaced in more casual properties by an abbreviated list or wine card that offers a limited variety at prices that encourage guest to buy

Describe the F&B control system. What are the duties of the F&B controller?

• F&B control systems have been used since Prohibition began
• During Prohibition, profits in the beverage department disappeared overnight and restaurants realized they had to get control of operating costs in the food department
• Large operations need one control system, while smaller operations need a smaller, less expensive system
• Computerize systems will be more efficient and less costly in labor
• Phases such as inventory, sales income, and menu engineering have been computerized
• F&B control personnel have become involved in the management of operations and development of policy
• Causes trouble due to a lack of understanding of what a controller does
• Controller is in a staff (advisory) position and reports facts and makes suggestions to managers, but managers must make policy and operating decisions

* Duties of the Food and Beverage Controller
• F&B controller is a member of accounting
• Duties
• Help accountant prepare the annual budget, monthly forecasts, related F&B info
• Daily review of the manner in which the receiving clerk carries out his duties and observe daily the quality of merchandise coming into the property through receiving
• Check daily F&B requisitions and production tests and confirm a daily sales analysis is made on entrée sales
• Review purchase records for price comparisons, for trends in seasonal foods, and for cost figures in order to correct cost out menus
• Prepare daily food cost reports and weekly beverage potential cost reports
• Keep perpetual inventories on beverage storerooms and on the frozen and expensive dry ingredients
• Assist in or take month-end inventories of both F&B
• Prepare F&B reconciliations of costs for accounting
• Attend weekly F&B meetings and provide cost information to management or the F&B manager for operational decisions
• Work closely with top management, the F&B manager, chef, and purchasing to set up standard purchase specifications and to provide a continuous check on portion costs
• Help F&B manager and chef prepare and maintain standard portion size lists
• Assist management in the preparation, maintenance, and continuous use of the standard recipe files

What are the uses of a production forecast? What factors are considered? How often do they forecast?

• How many meals/guests will we serve in the future?
• Right answer helps ensure acceptable food and payroll costs
• Forecaster considers facts and figures for a given period of time which then determine the number of guests served based upon the number of guests in the hotel
• One forecast is typically made a week in advance
• Just a preliminary forecast
• Could become obsolete
• Every day, controller adjusts a three-day forecast as well
* Factors considered
• Previous year's record of guests served and house count are re-checked to maintain accuracy
• Weather, day of the week

* Forecast uses
• Determines staffing to schedule: correct number of people to get the job done well, but no more than necessary
• How much food to be prepared: maintain low food costs, since overproduction increases costs more than any other factor
• To purchase the amount of food necessary for a given period
• Planning other purchases: knowing approximate income, he can determine expenses and arrive at a profit figure

How are F&B costs calculated? Where is it recorded?

• Actual F&B costs are indicated as cost of goods sold on monthly income statements
• F&B management need food cost information more frequently to make timely control decisions

* Prepare and distribute daily food cost report
• All F&B department heads receive this report, which indicates whether food costs are running higher than budget
• Daily food cost information is tabulated for general manager's daily food report
• Keeps managers informed about food costs for the day and to do ate and how these food costs relate to the same period of the previous year
• Record best record food costs separately for each restaurant
• Managers and F&B controller analyze operations to find out why food costs are high

* Beverage costs do not fluctuate greatly from day to day and it is not necessary for the controller to publish a daily beverage cost report
• Excellent results can be attained through the use of the analysis of beverage sales and costs report
• Report on a weekly, semi-monthly, or monthly basis
• Shows what the sales actually were, what the costs were, and what the sales should have been based on the sales price per drink, the current cost of liquors, and the standard size drink being served at the various bars
• Shows sales and costs for full bottles separate from the sales and costs of mixed drinks
• Readily locate possible losses and correct them

Why are payroll costs so significant? What are they caused by? How can we control them?

• Wages and salaries make up a large percentage of the operating expenses
• Biggest factors in increased payroll costs are the cost of benefits: vacation pay, pensions, medical and dental benefits, life insurance, unemployment benefits, workers' compensation, personal holidays, and sick leave
• Cost of benefits in an F&B operations is 36% of payroll
• Rising labor and benefits costs will force a change in facilities and service offered to the commercial food service customer
• Begun eliminating great deal of service and moving toward self-service bars featuring pre-prepared food
• Banquet service is sometimes offered as buffet service
• Even high-check average restaurants offer buffet serve at noon and salad bars, soup bars, and dessert bars for dinner
• Some restaurants offer guests opportunity to do their own cooking
• Innovation is key in offsetting high payroll costs
• Prime Cost = Food Cost + Labor Cost
• Each expressed as a percentage of sales
• Prime cost should not exceed 65% if the operation is to be profitable
• Note that a restaurant with a high food cost and low labor cost or low food cost and high labor cost can have identical prime costs and be profitable

* Excessive Payroll Costs
• Average payroll costs are 40% of sales
• Excessive payroll costs stem from poor management
• Sometimes location, physical set up, or need to offer a service make it impossible to reduce payroll costs, but these situations are rare
- Excessive payroll costs are generally caused by:
• No basic staffing guides
• Poor or no budgeting and forecasting
• No work schedules
• No control of overtime
• No control over variable staffing for banquet service
• Poor payroll cost reporting
• Union job restrictions
• Poor communication between managers and employees (Further complicated by poor communication between management and unions)
• Managers must first recognize the problem and then make a commitment to resolve it
• Top-level managers must coordinate the efforts of the various people involved. They must follow up and ensure that plans are carried out
• Program for controlling payroll should be developed by someone with the time and ability to do the job; must be familiar with the operation as a whole, read and analyze operating statements, be methodical, and have empathy for employees
• Some payroll procedures may require changes to abide by the union contract
• Person who is in charge of payroll control must know conditions of the union contract and work with union representatives to protect the best interests of the hospitality operation

- Step-by-step program for controlling costs
1. Annual operating budget (compiled from monthly operating budgets) for the F&B operation should be prepared under the supervision of management
2. Staffing guide that incorporates required performance standards should be developed. Allowable labor hours permitted by the staffing guide should be in harmony with the operating budget standards.
3. A revised budget or forecast should be prepared by the 25th of each month for the coming month by the F&B manager with the help of department heads; it should be approved by upper management. This labor budget should reflect the forecast of expected business volume.
4. Personnel in all positions should be scheduled on a weekly (or another regular) basis, according to the business forecast and to staffing guide requirements.
5. Should be a regular monthly comparison of the actual results of the operation with the annual and revised budget as soon as management receives the monthly operating statement. Actual hours worked should be compared with hours scheduled.
6. Each department within F&B should have a current organization chart and a basic staffing guide that shows the number of employees and hours allowed in the basic staff, day by day, for the week.
• Standards should be set up for variable staff (e.g. dishwashers, extra banquet help, extra food servers, housepersons, buspersons) that are hired on an hourly basis as the workload requires
• These standards are specified in the union contract
• Sometimes, they are subject to negotiation, this is where goodwill on the part of everyone can pay off for both sides
• Overtime becomes extremely costly unless strictly controlled
• Procedure for pre-approval of overtime by F&B manager or other official
• There should be a policy of no built-in overtime for anyone; this policy should be diligently followed by the general manager
• Weekly report of the payroll showing regular time, extra time, and overtime, and a comparison between the actual and the allowable time and cost in these categories
• Should be discussed in weekly F&B meeting

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