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Bali Hospitality Professional Service

Drs. Agustinus Agus Purwanto, MM Senior Consultant Jl. Tukad Batanghari VIII/7A Denpasar – Bali – Indonesia E-mail: Web:

Chapter 8 The Functions of Management

P O S D CO R B Planning Organizing Staffing Directing Coordinating Reporting Budgeting

Front Office Budgeting
The most important long-term planning function FOM is responsible for: 1. Forecasting Rooms Revenue

Use historical trend data

2. Estimating Expenses

Vary directly with rooms revenue

Forecasting Rooms Revenue
Forecasted Annual Rooms Revenue = Rooms Available Occupancy Percentage Average Daily Rate

Rooms Available = Total Rooms X 365 Days

Forecasting Rooms Revenue Example
100 Room Hotel 100 x 365 days = 36,500 Rooms Available 75% Occupancy Percentage .75 $50 Average Daily Rate

36,500 x .75 x $50 = $1,368,750

Room Forecasting
Ten-Day Forecast

Done by FOM and Reservations Manager

House Count
 

Expected number of guests in the hotel Divided into group and non-group

Three-Day Forecast

Forecasting Room Availability
The most important short-term planning function
Hotel Occupancy History  The past few months and last year at this time Reservation Trends  How far in advance are reservations being made? Scheduled Events  City-wide conventions; sporting events, etc.

Forecasting Data
 Expected guests who did not arrive.


Guests without reservations.


Guests who stay beyond their departure date.


Percentage Of Noshows
Number of Room No-Shows Number of Room Reservations

Purpose:  Helps front office managers decide when (and if) to sell rooms to walk-in.

Percentage Of Walkins
Number of Room Walk-Ins Total Number of Room Arrivals

Purpose:  Helps front office managers know how many walk-ins to expect.

Percentage Of Overstays
Number of Overstay Rooms Number of Expected CheckOuts
Purpose:  Alerts front office managers to potential problems when rooms have been reserved for arriving guests.

Percentage Of Understays
Number of Understay Rooms Number of Expected Check-Outs Purpose:  Alerts front office manager to additional room availability.

20% of hotels charge understay

Rooms Availability Formula
+ + Total number of guestrooms Out of order rooms Stayovers Reservations Reservations x no-show percentage Understays Overstays Number of Rooms Available for Sale

Rooms Availability Formula Example
150 Guestrooms - 5 Out of Order - 45 Stayovers - 50 Reservations + 10% No-show + 5 Understays - 20 Overstays 40 Rooms Available for Sale

Establishing Room Rates
Marketing Positioning Statement

Room rates reflect service expectations to the hotel’s target markets.

1. 2. 3.

Market Condition Approach Rule-of-thumb Approach Hubbart Formula Approach

1. Market Condition Approach

Common sense approach. Often used, but has many problems. Base room rates on your competitions’ rates. Doesn’t take into account new properties and construction costs. Allows the local market to determine the

2. Rule-of-thumb Approach

Sets the minimum average room rate at $1 for each $1,000 of construction & furnishing costs per room. Assumes 70 % occupancy $125,000 in construction and furnishings - $125 room rate Doesn’t take inflation into account

2. Rule-of-thumb Approach
Average per-room cost for hotel development: Segment
    

Per-room cost $52,800 $85,600 $103,100 $165,900 $516,300

Budget/Economy Midscale w/o Midscale with F&B Full Service Luxury/Resorts

3. Hubbart Formula Approach

Begin with desired profit based upon expected Return on Investment (ROI) Calculate pretax profits, fixed charge, management fees, & operating expenses Estimate other departmental income Determine the required rooms department income

3. Hubbart Formula Approach
Average Room Rate = Rooms Department Revenue Expected Number of Rooms Sold Sets a “Target” Average Price Lets you determine if your target is too high You may have to finance the difference

Evaluating Front Office Operations
Occupancy Percentage

The most commonly used operating ratio

Average Daily Rate (ADR)

Average of all room types and rates

Revenue per Available Room (RevPAR)

Measures revenue capabilities of hotel

Occupancy Percentage
Number of Rooms Occupied Number of Rooms Available

What does rooms occupied include?

Rooms sold + comp rooms

What does rooms available include?

Use the rooms availability formula

2001= 59.20%

Occupancy Percentage Example
Number of Rooms Occupied Number of Rooms Available
 

Sold 95 rooms with 5 comps 150 room hotel with 25 out of order 100 125 =

95 + 5 = 150 - 25 =


Daily Occupancy Rates
70 60 50 40 30 20 10 0
Sun Mon Tues Weds Thurs Fri Sat

62.4 47.8





Average Daily Rate (ADR)
Rooms Revenue Number of Rooms Sold Number of Rooms Sold includes comps

Average Daily Rate Example
Rooms Revenue Number of Rooms Sold
 

$10,000 Rooms Revenue Sold 95 rooms with 5 comps $10,000 100

$10,000 95 + 5 =

$100 =

Revenue per Available Room (RevPAR)
Actual Rooms Revenue Number of Available Rooms or: Occupancy Percentage x ADR

2001 = $49.36

RevPar Example
Actual Rooms Revenue Number of Available Rooms
 

$10,000 Rooms Revenue 150 room hotel with 25 out of order $10,000 125 =

$10,000 150 - 25


Revenue per Available Room Example
Occupancy Percentage x ADR 80% x $100 = $80
RevPAR Limitations:

* Does not include Revenue & Costs from F&B and other outlets
 

Is RevPAR higher or lower than ADR ? When will they be equal?

RevPAR Index
Hotel RevPAR Competitive Set RevPAR

You decide what hotel’s make up your competitive set of hotels that you compare yourself too.

Get your Comp Set RevPAR figures from the

RevPAR Index - Example
Hotel RevPAR Competitive Set RevPAR
 

Your Hotel’s RevPAR is $58; Comp Set is $60 $58/$60 = .966 x 100% = 96.6% Below 100% = Under Performing Hotel 100% = Fair Share Above 100% = Over Performing Hotel

RevPAR Index Missed Revenue Example

If your Hotel’s RevPAR is $58 and your Comp Set’s is $60, you are losing $2 per room in potential revenue

Calculate your potential lost revenue per month RevPAR Difference x Number of Rooms x Days in Month


RevPAR Index

You need to select a realistic Comp Set of hotels

Comparing a luxury hotel to economy hotels inflates your RevPAR Index but doesn’t help your revenues

A consistent increase in RevPAR Index is your goal