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Budgeting is one of the main planning activities of an executive housekeeper. It is the
process by which, based on the actual performance of establishments in the past,
estimates of expenditure and receipts are made and adjusted for forecasting future
outcomes. Budget can be defined in many ways:
“ budget is a plan by which resources re!uired to generate revenues are allocated."
# budget is a plan which projects both the revenues the hotel anticipates during the
period covered by the budget and the expenses re!uired to generate the anticipated
%he advantage in preparing a budget is that it provides an opportunity for taking a
critical look at the cost of the department, reviewing past planning and present
accomplishments, and then taking appropriate steps to accomplish more in the coming
financial years. %he executive housekeeper$s responsibilities in the budgetry process are
'irst, the executive housekeeper is involved in the planning process that leads to the
formulation of the budget. %his entails informing the room$s division manager and
general manager what expenses the housekeeping department will incur in light of
forecasted room sales.
(econd, since the budget represents an operational plan for the year, the executive
housekeeper ensures that the department$s actual expenses are in line with the budgeted
costs and with the actual occupancy levels.
%he budget thus acts as a guide that provides the managers with the standards by which
they can measure the success of operations. By comparing actual expenses with
allocated amounts, the executive housekeeper can track the efficiency of housekeeping
operations and monitor the department$s ability to keep its expenses within the
prescribed limits. Budgets provide a financial framework within which the housekeeping
department operates. %hus, budgets should be carefully prepared and used to govern the
%he budget also acts as a guide as to which things need repair or replacement. It helps to
determine what valuable pieces of e!uipment may be purchased and to pinpoint the
areas where emphasis will be placed for the coming year.
TYPE OF BUDGETS
Budget may be of different kinds, based on the types of expenses involved, the
departments and the flexibility of expenses.
Categorized by Type of Expenditure
Based on the types of expenses and assets involved, budgets may be categori)ed into
capital, operating and pre&opening budgets.
Capital budget * %hese allocate the use of capital assets that have a life span
considerably in excess of one year, these are assets that are normally used up in day to
day operations. 'urniture, 'ixture and +!uipment ,''+- are typically examples of
capital expenditures. .apital expenditures in the housekeeping department may include
room attendant$s carts, vacuum cleaners, general floor machines, carpet shampoo
machines, sewing machines and laundry e!uipment. %he hotel building itself is also a
Operating budget * %hese forecast expenses and revenues associated with the
routine operations of the hotel during a certain period. /perating expenditures are those
costs the hotel incurs in order to generate revenue in the normal course of doing
business. In the housekeeping department, the most expensive operational cost is the
salary and wages or labor cost. %he cost of all&recycled inventory items, such as cleaning
and guest supplies, are also operational costs.
Pre!opening budget * %hese force the planning necessary for the smooth opening of
a new hotel. %hese budgets allocate resources for opening parties, advertising,
generation of initial goodwill, liaisons and 01. 0re&opening budgets also include the
initial cost of employee salaries and wages, as well as supplies, crockery, cutlery and
Categorized by Depart"ent #n$ol$ed
Base on the department involved, budgets may be categori)ed into master budgets or
%ater budget * %hese represent the forecasted target set for the whole organi)ation
and incorporate all incomes and expenditures estimated for the organi)ation.
Depart"ent budget * each department of the hotel forwards a budget for its
estimated expenses and revenues to the financial controller. 'or instance, there would
be a housekeeping budget , an '2B budget, a maintenance budget, and so on. In fact,
the room division budget is in this case the combine budget of the front office and
Categorized by Flexibility of Expenditure
Budget may also be classified on the basis of the flexibility of expenditure:
Fixed budget * %hese budgets remain unchanged over a period of time and are not
related to the level of revenues. (uch budgets include budgets for advertising and
Flexible budget * %hese budgets pre&determine expenditure based on the revenue
expected and differ with different volumes of sale.
+xpenses that need to be budgeted for by the housekeeping department may be
operating expenses or capital expenditures
*+ Operational Budget is the allocation of expenses for each item3s re!uired by the
department in order to operate smoothly. In case of hotel operation, controls of
expenses are based on occupancy percentage. %he budgeted amount for the month can
be variable since there are certain periods where occupancy forecasts in other areas or
countries are unreliable or unpredictable.
%he basic 4ousekeeping operational budget are as follows:
b- 5inen 2 %owels
c- 6uest (upplies 2 menities
d- .leaning (upplies
e- 5aundry (upplies
f- 7achine, %ools 2 +!uipment
i- 0rinting and stationeries
%here are budgeted item3s or sections in 4ousekeeping that are usually divided between
other departments such as follows:
9- 1epairs and 7aintenance
%his type of operational budget is usually divided between housekeeping and
:- ;niform Budget
;niform expenses is prepared by the +xecutive 4ousekeeper with all the elegance,
comfort, durability, styles, colors and functionality of the uniform chosen for each
department. /nce a specific style of uniform has been chosen, it is then coordinated
with the concern department and when the +xecutive 4ousekeeper gets the approval
she then submits them to the 6eneral 7anager for overall coordination of styles, colors,
functionality etc. that reflects the proper image perception of the entire hotel in the eyes
of the guests. %he last step will be to endorse them to the 'inancial .ontroller for
allocation of budgeted amount to each department.
4ousekeeping is one of the department in the hotel which helps and assists in the
beautification of the hotel inside and outside the building. 8ecoration can be flower
arrangements, fresh and artificial depending on the policy of the hotel since there are
hotels that prohibit the use of artificial flower arrangements for fire ha)ard issue, picture
frames, statuary, carvings, tapestry, artifacts and many others are examples of
decorations. 1e!uests for flower arrangements seemed to be the most needed items in
the hotel whether for the guestrooms, 'ood and Beverage functions, /utside .atering,
5obby of the hotel, .onvention centers and other areas that re!uires flower
=- 0rinting and (tationeries
'ront /ffice and 4ousekeeping are the two departments that share this budget.
%his type of budget can be charged between 4ousekeeping and any other department
depending on what type of expenses is incurred.
T,e e-ond type of &oue.eeping budget i Capital Expenditure /C0PE)+
.apital +xpenditure Budget is the allocation of funds for a specific project or items that
will help and assist the operation of the hotel. In case of 4ousekeeping, projects can be
something that re!uire replacement or additional 4ousekeepers cart, 5aundry washer 2
dryer, building a new 5aundry (hop for outside customers, replacement of vacuum
cleaners, replacement of worn out beds or furnitures which is usually done floor by floor
or by segments. ;sually the .0+? fund is allocated same way as how the operational
budget has been allocated for the coming year. %herefore on a yearly basis project3s
is3are accomplished and completed especially if the item3s have specific life span where
replacement are made specifically each year. %his way the hotel or facility is well
maintained, e!uipped and preserved like new. It is through .0+? fund that
maintenance of the hotel works best and at the same time avoiding depreciation of items
in large !uantities where it is difficult to resolve since they re!uire huge amount to
.apital expenses include the cost of e!uipment and machines@ furniture and fittings, etc.
E1uip"ent and "a-,ine %his category /' expenses involves the e!uipment and
machines used by the housekeeping department, such as floor&cleaning machine,
vacuum cleaners- and those provided in the guest rooms for guest use.
Furniture and fitting %he budget for guestroom furniture and fittings is under the
purview of the housekeeping department since it is responsible for their cleaning and
%he room division$s budget&planning process depends on two main factors.
9. 'orecasted room sales or occupancy levels
:. .ost per occupied room.
The hotel’s reservations department is charged with two primary tasks; setting rates
and selling rooms. Before successfully accomplishing either of these tasks, the
reservations department needs an accurate count of the number of rooms available for
sale. Knowing how many rooms are available for sale on a given date is a logical
firststep for the task of selling rooms. Less clear, however, is the relationship between
the number of rooms available for sale and the setting of rates
for a given period. This second relationship forms the basis for the key obective of any
hotel! to ma"imi#e revenues through yield management. $ield management is the
process of ma"imi#ing gross rooms revenues by carefully managing both the number of
rooms sold for a given period %occupancy& as well as the average rate ' known as
average daily rate %()*& or sometimes average room rate %(**& ' received for each
room sold. $ield management is based heavily on the ability of the hotel to forecast the
number of rooms available for sale in advance of the date in +uestion.
The dual role of forecasting availability
The definition of yield management points clearly to the dual role of forecasting
availability; ma"imi#ing rate through accurately estimating demand and ma"imi#ing
rooms sold through systematic forecasting. $ield management in the lodging industry
rests on an irrefutable foundation; the rate charged for remaining rooms tends to
increase with rising occupancy proections. ,n other words, hotels generally receive a
higher rate from the last few rooms sold than they do from the first few rooms
sold. The first rooms may have been sold %reserved& a year or more in advance, a
period filled with uncertainty in terms of occupancy for the date in +uestion. (s such,
hotels tend to discount room rates early in the cycle as they attempt to gauge their
business levels for the date in +uestion. Through regular forecasts of the date
in +uestion, the hotel grows more and more confident in its understanding of the
business levels it will e"perience. (s confidence grows and occupancy for the date
becomes more and more certain, the room rate rises. ,n the end, the last rooms sold
receive the highest rate. By raising rates, step-by-step, as the room forecast grows
in accuracy, the hotel reaps ma"imum yield for the period in +uestion. .nderlying the
premise that rising occupancy gives way to rising rates is the logic that systematic
forecasting of room availability affords the hotel less errors of fact with regard to under-
or over-booking rooms sold. ,t takes little to imagine the problems which might befall a
hotel that incorrectly forecasts available rooms. ( substantial error one way or
the other can be costly to the hotel’s bottom line. (n error resulting in underbooking
rooms available for sale can occur a number of ways. ( few e"amples might include! a
reservations department which holds more rooms for a group than they actuallyoccupy,
a heavier number of checkouts than forecast, or a high last-minute cancellation rate.
(ny of these e"amples will result in more available rooms than proected. (nd unsold
rooms are costly/ 0verbooking the hotel is e+ually costly.
1"amples of overbooking errors might include! proecting a higher number of check-
outs than actually e"perienced, forecasting more no-shows and cancellations than
occurred, or holding less rooms for a group room block than were
actually re+uired.2hile underbooking the hotel is costly to the bottom line, overbooking
the hotel can be costly to good will and guest satisfaction. 3ertainly no guest wants to
arrive for the night only to be told the reservation cannot be honored and the guest
must be walked to another property because the hotel overbooked. %4or more
see entries on 0verbooking, 2alking, and 5o-show.&
The ultimate goal of every hotel is to achieve the 6perfect fill,’ defined as a paid guest in
every hotel room. To reach this elusive benchmark, however, the hotel needs to make
some difficult %and often risky& decisions. 0ne of the first steps in the
decision-making process is to understand which types of reservations are acceptable to
the hotel. 7otels seeking to reach perfect fill generally book a very high percentage of
their rooms as guaranteed or advance deposit reservations. 3onversely, they generally
book very few nonguaranteed reservations. 8ome hotels refuse nonguaranteed
reservations altogether. 7ere is a +uick look at the three classic types of
- (dvance-deposit reservations! (dvance-deposit reservations are another form of
guaranteed reservation. 7owever, rather than guaranteeing the room to a credit card
or corporate account, an advance-deposit reservation re+uires the guest to send
payment in advance. 9ayment may come in the form of a cashier’s check, personal
check, money order, or even authori#ed credit card payment. ,n any case, hotels
that re+uire advance-deposit reservations often establish more rigid cancellation
policies %longer lead time for cancellations& in order for the guest to receive full refund.
- :uaranteed reservations! *eservations guaranteed against a guest’s credit card or
corporate account have higher credibility than non-guaranteed reservations. That’s
because the guest has something to lose if he or she fails to arrive. )epending on the
hotel’s cancellation policy,failing to arrive for a guaranteed reservation usually costs the
guest or the corporate account a night’s room and ta".
- 5on-guaranteed reservations! 5on-guaranteed reservations %sometimes called ;
p.m.-hold reservations& have no monetary promise associated with the reservation.
8hould the non-guaranteed reservation fail to materiali#e, the hotel has no
recourse against the guest. (s such, non-guaranteed reservations are very risky and
uncertain reservations. <any hotels refuse to accept non-guaranteed reservations
%though they may accept them on occasion as favors to particular guests or in
uni+ue circumstances&. Because there is a very high no-show factor associated wit non-
guaranteed reservations, accepting such reservations impacts the hotel’s ability to
reach perfect fill.
,f guests never changed their minds, it would be very easy to fill hotels. The formula
would simply be!
8tayovers = Today’s reservations
> *ooms committed
4ow to 0repare a 4ousekeeping BudgetAA
4ousekeeping is one of the departments in the hotel that has the most bulk expenses
and consumable items. Items like bathroom amenities such as shampoo, conditioner,
body lotion or moisturi)er, eau de cologne, facial soap and body soap@ bath towel, hand
towel, face towel, bath mat, bathrobe, rubber mat@ bed sheet, pillow, pillow case, throw
pillow, neck pillow, mattress pad, blanket, duvet3 duvet insert, bed cover@ toilet paper,
facial tissue@ coffee maker, coffee sachet, sugar condiments@ ironing board, flat iron@
alarm clock@ cooking utensils, crockeryBs and cutlery@ give away toothbrush and
toothpaste@ printing materials, stationery, envelope, note pad, ball pen, folder,
telephone directory, Bible or 4oly CurBan can have a substantial impact in the hotelBs
%hese are variable assets that when consumed, damaged, lost or become sub&standard
are being discarded or removed from circulation, /nce removed from circulation or
consumed, the same !uantities must be replenished or replaced with additional mark&
up in order to maintain the high standard or !uality of service in the hotel.
'ixed assets like the roomBs furniture and fixtures such as beds, fridges, television sets,
mirrors, sofas, easy chairs, reclining chairs, tables, telephones, lamps, headboards, air&
conditioning3heating e!uipment etc. can be very costly when damaged or become sub&
standard. %hese items are usually included in the .apital +xpenditure Budget especially
when refurbishment is re!uired. But if its only one or two pieces, this amount can be
allocated in the operating budget.
'or the machine and e!uipment, 4ousekeeperBs cart and vacuum cleaners are the most
important tool used in the overall cleaning and maintenance of the hotel guestrooms
and public areas. 7achines like carpet shampoo and water extraction machine, rotary
machine for carpet shampoo, floor scrubber and floor polishing, wet and dry vacuum
cleaner. hydraulic lift etc. are additional heavy duty machines that help in the overall
cleaning re!uirements of the hotel. %hese too are included in the .apital +xpenditure
'or 5aundry area there will be the laundry machine, washer, dryer, dry cleaning
machine, laundry folding machine3 calendar, tables, carts, laundry sorter boxes,
movable clothes hanger rails, guest laundry printer etc. are .apital +xpenditure items,
while detergent, bleach, stain remover, dry cleaning fluid, ph level water treatment
solution etc. goes to the operational budget.
5isting all the detailed items involved in preparation of budget gives you an idea how
intricate housekeeping budget preparation is.!uoteD
Eith the above numerous items, the consumable or fast moving items are the most
important items in the preparation of budget. %he consumable items are included in the
operational budget. %he fixed asset items are included in the .apital +xpenditure
Budget or .0+?.
/perational Budget is being prepared annually and submitted to the 8irector of 'inance
for further study and to finali)e the total amount in coordination with the department
head. /perational Budget is always based on the next yearBs forecasted occupancy
percentage. 'or example:
Item: toilet roll F GH.>H3roll
:HHI consumption F >HJ occupancy K >H,HHH F GH.>H KG:>,HHH.HH
:HHL forecasted occupancy percentage is M>J
M>J& >HJ K :>J , :>J of >H,HHH K9:,>HH-
,>HJ N :>JK M>J- K , G:>,HHH.HH NG9:,>HH.HH K F<M,>HH.HH-
1emaining items are calculated in the same manner till all the items re!uired are
included in the next yearBs budget.
.apital +xpenditure Budget is for specific items or project that needs to be replaced,
made and built in the improvement of guest service or the hotel itself. 'or example:
%he hotel management with the approval of the owner of the hotel would like to extend
the 5aundry service to non&hotel guest or outside customer. %he project will be a
O5aundry (hopO, therefore a !uotation will be re!uired from the contractor for the cost
of building the 5aundry (hop, the additional guest3customer laundry bag, laundry and
dry cleaning list, and additional manpower for customer service etc. %o sum up the
amount of .onstruction of laundry shop K G<>,HHH.HH@ additional laundry bags and
lists K G>,HHH.HH and additional manpower K GL,HHH.HH annually.
%he G<>,HHH.HH will be included in the .apital +xpenditure while the additional
laundry bags3lists and manpower will be added in the operational and staffing budget.
%herefore, the operational budget is for the consumable items and .apital +xpenditure
is for special project or items that are costly. %here are also certain items being shared
by the 'ront /ffice and 4ousekeeping. %he charges on these items are being split
between the two departments. Ehen it comes to 7aintenance, +ngineering 8epartment
charges the 4ousekeeping for any services rendered like maintenance of the machine
wherein they have to supply machine parts and labor, so these are being coordinated
with +ngineering. It is important that housekeeping machines are handled with care to
avoid such charges.
7onitoring the /perational budget is the most crucial part in the operation of business.
Eith the modern technology and the computer software, daily updated total expenses
against budgeted amount are made possible and easy to trace in order not to exceed the
budgeted amount. +very end of the month, the ccounting 8epartment distributes
copies of last monthBs budget outcome to the 6eneral 7anager and the 8epartment
4eads in order for them to review and analy)e where their budget is in line and where it
is not. 6eneral 7anager will re!uire the department head that have exceeded their
budget a reasonable report since he is accountable to the corporation as well as the
owner of the hotel.
Cot per o--upied roo" /CPO3+
%he .0/1 order type is for processing hotel3motel cost per occupied room business. In
this case, the customer is invoiced an amount based on how many occupied rooms they
had for the month, not how much product they BpurchasedB for the month.
Potice above that the invoice is based on room count and month. ItBs important that a
new order is started at the beginning of each month and used throughout the month.
Ehen a .0/1 order is created, an automatic billing block is applied. %he billing block is
necessary because we do not want to bill the delivery,s- until we receive the room count
from the customer.
Ehen a .0/1 customer calls in an order, customer service must search for an existing
.0/1 order for the current period. If one is found, the existing order is added to by
either the addition of lines to the order or by increasing the order !uantity of existing
%he order is then delivered in the normal fashion. 8uring the month, itBs possible to
make several deliveries to the customer. 'or a standard order, we would invoice each
one of these deliveries as soon as possible. 'or a .0/1 order, we must invoice all
deliveries at the same time after we obtain the room count and apply a header condition.
.ost3occupied room K /perating +xpenses 3 1oom sales.
C02CU20T#(G #(D#4#DU02 OPE30T#(G E)PE(SES.
n operating expense, operating expenditure, operational expense, operational
expenditure or /0+? is an ongoing cost for running a product, business, or system . Its
counterpart, a capital expenditure ,.0+?-, is the cost of developing or providing non&
consumable parts for the product or system. 'or example, the purchase of a photocopier
involves .0+?, and the annual paper, toner, power and maintenance costs represents
. 'or larger systems like businesses, /0+? may also include the cost of workers
and facility expenses such as rent and utilities.
In business, an operating expense is a day&to&day expense such
as sales and administration, or research 2 development, as opposed to production,
costs, and pricing. In short, this is the money the business spends in order to
turn inventory into throughput. /perating expenses also include depreciation of plants
and machinery which are used in the production process.
/n an income statement, Ooperating expensesO is the sum of a businessBs operating
expenses for a period of time, such as a month or year.
In throughput accounting, the cost accounting aspect of the theory of constraints ,%/.-,
operating expense is the money spent turning inventory into throughput. In %/.,
operating expense is limited to costs that vary strictly with the !uantity produced, like
raw materials and purchased components. +verything else is a fixed cost, including
labour ,unless there is a regular and significant chance that workers will not work a full&
time week when they report on its first day-.
In a real estate context, operating expenses include costs associated with the operation
and maintenance of an income&producing property
Below is an outline of the considerations in each category.
Salarie and 5age to calculate these expenses, the salaries and wages paid to all job
positions& such as the executive housekeeper, assistant housekeeper, supervisors, 61s,
linen room attendants, housemen and so on.& have to taken into an account. %he
executive housekeeper first works out the number of employees re!uired at various
positions. If the occupancy levels are fluctuating considerably, the executive
housekeeper should employ only the minimum staff re!uired on the payroll and the rest
of the staff should be hired on daily wages basis if labor is easy available. 8uty rotas
need to be planned efficiently so that annual leaves and weekly off days can be given on
days of low occupancy.
E"ployee benefit these calculation depends on the number of labour hours expected
to be scheduled, the job positions involved, and hotel$s policies regarding employee
benefit. In most properties, +mployee benefit include the cost of on&duty meals, payroll
taxe, provident funds, medical expenses for the employees and their immediate family
Contra-t er$i-e the cost of all contract service is averaged throughout the budget
period of one year. .onsidering the historical data of contract services already used will
lend an insight into the expense level to budget for.
OPE30T#(G SUPP2#ES. %he major types of operating supplies include guest
supplies and cleaning supplies.
Guet upplie. %hese are non&recycled inventory items and variable in cost. %his
expense category will depend on the cost per occupied room. %he executive housekeeper
finds out the consumption factor arrived on for soap is H.I the budgeted room sales is
=HHH for a month@ and the cost of a bar of soap with the hotel$s monogram is :.HH, the
budgeted expense for soap will be.
.onsumption factor S budgeted room sales S cost of one unit.
In case of two soap bars are to be placed in one guest room, the amount obtained is
multiplied by:. In all case, the amount needs to be further multiplied with thw par
number to be maintained for each guest supply.
Cleaning upplie these are non& recycled inventory items that are semi variable in
cost. %he higher the occupancy, the higher the volume of cleaning supplies used. It also
needs to be remembered that the executive housekeeper schedules deep cleaning tasks
during slack period.
'or budgeting linen expenses, the executive housekeeper need to calculate the cost of
linen per occupied room based on historical data. %he higher the occupancy, the more
the fre!uency of washing the linen. 4istorical data gives some guidelines in calculating
%he laundry expenses are primarly variable, except for uniforms. %he executive
housekeeper can refer to the historical data for calculation of laundry expenses. 5aundry
• .hemical cost
• Eater cost
• +nergy cost
• 5abour cost.
%he cost of laundering is expressed as follow
.ost per piece or weight unit &K total number of pieces or total weight of linen3 total cost
incurred in a month.
9HHH room hotel uses :HHH bath towels per day at 9HHJ occupancy. 8uring the
past year the hotel purchased and inserted 9:HH do)en new bath towels to maintain an
ade!uate supply of towels in working inventory.
U Ehat are the number of launderings the hotel experienced and the linen replacement
ratios for this itemA
Pumber of 5aunderings K 0ieces 5aundered :HHH ? <T> M<H,HHH
Pew 0ieces Inserted K 9:HH ? 9: K 9=,=HH K >H.M
5inen 1eplacement 1atio K Pew 0ieces Inserted 9=,=HH
0ieces 5aundered ? 9HH K M<H,HHH ? 9HH K :.H
Ee can now use our historical experience to plan future linen replacement expenses.
'/1+.(%IP6 0I+.+( 5;P8+1+8:
%o forecast 0ieces 5aundered we need to use a historical benchmark.
U %his benchmark is achieved by using the following formula:
0ieces 5aundered per /ccupied 1oom K 0ieces 5aundered
%otal /ccupied 1ooms
U ;sing the preceding formula, our 0ieces 5aundered per /ccupied 1oom would be
computed as follows:
0ieces 5aundered 0er /ccupied 1oom K 0ieces 5aundered or :HHH
%otal /ccupied 1ooms 9HHH K :.H
U Pow we can easily compute a forecast for any level of occupancy and a time period by
using the following formula:
V If our 9HHH room hotel has :.H pieces laundered per occupied room, how many total
pieces will be laundered per year if the forecasted occupancy is IMJA
nnual /ccupancy: K 9HHH 1ooms ? <T> x .IM K <9M,>>H
%otal 0ieces 5aundered: K %otal /ccupied 1ooms ? 0ieces 5aundered per 1oom
K <9M,>>H x :.H
K T<>,9HH =
.ontrolling expenses in the housekeeping department means comparing actual costs
with budgeted amounts and measuring the variances. Ehile doing this, be careful to
check whether the forecasted occupancy levels were achieved or not. e.g. if the
occupancy is lower than forecasted, decrease in expenses must be expected
proportionally. (erious deviations from the budgeted plan needs investigation in e.g.
staff scheduling, supervision, efficiency and cost of products used etc.
.ontrolling housekeeping expenses means ensuring that actual expenses are consistent
with the expected expenses on the operating budget. %here are four methods@
careful training and supervision
ccurate recordkeeping@ helps to monitor the usage rates, inventory costs, and
variances with standards
+ffective scheduling@ with the help of the staffing guide, personnel costs stay in line
with occupancy reports
.areful training and supervision@ important for controlling the cost of inventoried
items. +.g. training in the proper use of cleaning supplies can improve usage rates,
and lower the cost of cleaning supplies per occupied room
+fficient purchasing@ ensures that the hotel$s money is well spent and the maximum
value is received from products.
CO(T3O22#(G OPE30T#(G E)PE(SES
s far as controlling operating expenses is concerned, the executive housekeeper must
ensure the following.
+ffective documentation all inventories should be documented to monitor their usage
rates and costs.
Wero&based scheduling this refers to hiring employees by taking into account the actual
occupancy for a specified period of time.
1ight purchasing the executive housekeeper coordinates with the purchase department
to purchase for the housekeeping department. %he onus of controlling expenses on
purchasing is entirely on housekeeper.
+fficient training and supervisors training for new employee as well as training on new
methods for older employees is a tool for controlling expenses. +fficient training ensures
that the productivity and performance standards are met by all employees consistently.
COST CO(T3O2 #( SPEC#F#C 03E0
(ome specific methods of controlling expenses in various areas in housekeeping
department$s purview are outlined below.
6uestrooms and public areas the following measures can be taken in these areas.
• (taff must be trained to use cleaning supplies and e!uipment efficiently and
economically. (upervisors must control and monitor their use.
• ppointing multi&skilled staff and giving them proper training to retain them
• %he use of key& tag or electronic lock system helps conserve power by ensuring
that are light are switched off automatically when the guest is out of his room.
• lac!uer finish helps brass items longer and show less wear, which reduces the
use of proprietary polishes such as brasso and indirectly saves labour, time and
• In XI0 rooms, replace only those flowers that are shedding petals instead of
changing the entire arrangement.
• 1estrooms and toilets in public areas can have motion sensors to control power.
5inen room the following practices can be adopted for cost control in these areas.
• /ld, condemned white sheets may be cut up and used in ban!uet halls as
tablecloths for exhibitions and such.
• /ld shower curtains can be cutup and stitched into aprons for the butchery
department instead of traditional aprons.
• .ondemned towels can be turned into dusters and mop cloths for cleaning
(tores for controlling expenses in stores, effective stock&taking and control must be
ensured as it significantly reduces the expenses involved in the provision of cleaning and
%he expenses for housekeeping purchases are planned mainly in the form of a capital
budget or an operating expense budget. %he purchase can be of local or imported items.
Intends for the purchase of stock items are usually generated from the main stores on
the basis of re ordering levels. %he housekeeping department generates the indents of
non stock items.
(tock items are regular operating supplies such as soaps, shampoos, letterhead and
Pon&stock items are non consumable items such as crystal vases for flower
arrangement, wooden hangers and so on.
+fficient purchasing practices can make a significant contribution to the executive
housekeeper$s role in controlling expenses. %he housekeeping department coordinates
with the purchase department for all his purchase. %hough the main aspect of
purchasing function is to produce a certain material or item, the material has to be the
best buy at the right price. %his calls for regular market surveys on the part of the
housekeeping and purchase department. (alespeople and vendors are regularly met for
updates on the latest developments in other hotels and the industry as whole.
0urchasing managers3directors, and procurement managers3directors guide the
organi)ation$s ac!uisition procedures and standards. 7ost organi)ations use a three&
way check as the foundation of their purchasing programs. %his involves three
departments in the organi)ation completing separate parts of the ac!uisition process.
%he three departments do not all report to the same senior manager to prevent
unethical practices and lend credibility to the process. %hese departments can be
purchasing, receiving@ and accounts payable or engineering, purchasing and accounts
payable@ or a plant manager, purchasing and accounts payable. .ombinations can vary
significantly, but a purchasing department and accounts payable are usually two of the
three departments involved.
Ehen the receiving department is not involved, itBs typically called a two&way check or
two&way purchase order. In this situation, the purchasing department issues the
purchase order receipt not re!uired. Ehen an invoice arrives against the order, the
accounts payable department will then go directly to the re!uestor of the purchase order
to verify that the goods or services were received. %his is typically what is done for goods
and services that will bypass the receiving department. few examples are software
delivered electronically, P1+ work ,non reoccuring engineering services-, consulting
4istorically, the purchasing department issued 0urchase /rders for supplies, services,
e!uipment, and raw materials. %hen, in an effort to decrease the administrative costs
associated with the repetitive ordering of basic consumable items, OBlanketO or O7asterO
greements were put into place. %hese types of agreements typically have a longer
duration and increased scope to maximi)e the Cuantities of (cale concept. Ehen
additional supplies are re!uired, a simple release would be issued to the supplier to
provide the goods or services.
nother method of decreasing administrative costs associated with repetitive contracts
for common material, is the use of company credit cards, also known as O0urchasing
.ardsO or simply O0&.ardsO. 0&card programs vary, but all of them have internal checks
and audits to ensure appropriate use. 0urchasing managers reali)ed once contracts for
the low dollar value consumables are in place, procurement can take a smaller role in
the operation and use of the contracts. %here is still oversight in the forms of audits and
monthly statement reviews, but most of their time is now available to negotiate major
purchases and setting up of other long term contracts. %hese contracts are typically
%his trend away from the daily procurement function ,tactical purchasing- resulted in
several changes in the industry. %he first was the reduction of personnel. 0urchasing
departments were now smaller. %here was no need for the army of clerks processing
orders for individual parts as in the past. nother change was the focus on negotiating
contracts and procurement of large capital e!uipment. Both of these functions
permitted purchasing departments to make the biggest financial contribution to the
organi)ation. new terms and job title emerged * (trategic sourcing and (ourcing
7anagers. %hese professionals not only focused on the bidding process and negotiating
with suppliers, but the entire supply function. In these roles they were able to add value
and maximi)e savings for organi)ations. %his value was manifested in lower inventories,
less personnel, and getting the end product to the organi)ation$s consumer !uicker.
0urchasing manager$s success in these roles resulted in new assignments outside to the
traditional purchasing function * logistics, materials management, distribution, and
warehousing. 7ore and more purchasing managers were becoming (upply .hain
7anagers handling additional functions of their organi)ations operation. 0urchasing
managers were not the only ones to become (upply .hain 7anagers. 5ogistic managers,
material managers, distribution managers, etc all rose the broader function and some
had responsibility for the purchasing functions now.
In accounting, purchases is the amount of goods a company bought throughout this
year. it is also refers to information as to the kind ,!uality, !uantity and cost of goods
bought that should be maintained. %hey are added to inventory. 0urchases are offset
by 0urchase 8iscounts and 0urchase 1eturns and llowances. Ehen it should be added
depends on the 'ree /n Board ,'/B- policy of the trade. 'or the purchaser, this new
inventory is added on shipment if the policy was '/B shipping point, and the seller
remove this item from its inventory. /n the other hand, the purchaser added this
inventory on receipt if the policy was '/B destination, and the seller removes this item
from its inventory when it was delivered.
6oods bought for the purpose other than direct selling, such as for 1esearch and
8evelopment, are added to inventory and allocated to 1esearch and 8evelopment
expense as they are used. /n a side note, e!uipments bought for 1esearch and
8evelopment are not added to inventory, but are capitali)ed as assets.
P3#(C#P2ES OF PU3C&0S#(G
%he success of any manufacturing activity is largely dependent on the procurement of
materials of right !uality, in the right !uantities, from the right source, at right time and
at right price * popularly known as five #1$s of the art of efficient purchasing .
%hey are also described as the basic principles of purchasing as under:
9- %o purchase the right !uality of materials@
:- %o purchase the materials in right !uantities@
<- %o make the materials available at right time@
=- %o purchase the material at right price@
>- %o purchase the materials from the right source.
%hey briefly explained as under:
1ight !uality: %he materials are the basic input and the !uality of the output. It should
be noted that best !uality is not always the right !uality. %he right !uality is determined
by the cost of the material and the technical characteristics as suited to the specific
re!uirements. %he right !uality should be defined clearly and should be described in
terms of specifications. 6enerally the !uality decisions are made by the technical staff.
%he !uality specifications are controlled before the materials are issued for the
manufacturing processes. %he !uality testing is done through the inspection either at
supplier$s plant or at buyer$s plant.
1ight !uantity: %he right !uantity of the materials is determined on the basis of
economic ordering !uantity ,+./.C-. It is advantageous to purchase the materials on the
basis of +/C lots. %he +/C describes the si)e of the order at which the ordering costs
and the inventory carrying cost will be the minimum. %he ordering cost consists of the
cost of paper processing such as paper, typing, postage, filing, cost of personnel@ the
costs incidental to order placing such as follow up, receiving, inspection etc. If the si)e of
the order is large, the annual re!uirements will be met with little of the ordering cost as
the number of orders placed would tend to be less. .onversely, storing cost consists of
interest on funds locked up in storing, cost of storing, cost of insurance and taxes etc. If
few orders involving large !uantities are placed, the carrying cost will increase@ however,
the ordering cost will decrease due to less number of orders. %hus ordering cost and
carrying costs are mutually exclusive. t +/C level both these cots e!uate each other
and at this point, the total inventory cost would be at the minimum. %he +/C is
calculated on the basis of the following formula:
+/C K Y:18 3.(
Ehere 1 K annual re!uirements of the materials in units
8 K /rdering cost per order
. K .ost per unit
( K (toring cost as the value of materials stored.
1ight time: %he materials should be purchased at right time so that it may not result in
either excess investment in the stocks or may result into stock outs. +fforts must be
made to replenish the materials at a point where they are reaching at the reordering
level. %he purchase action is initiated at a tome when the material reaches to its pre&
decided reordering level. %he reordering level is decided on the basis of the rate of
consumption and the lead time. It should be decided on the basis of the probability of
maximum periodic consumption and maximum lead time. s stock holding is directly
related with the lead time, efforts should be directed towards the reduction of the lead
time so that carrying costs can be reduced to the minimum.
1ight price: %he investments in inventories are determined by the prices charged for
them. ll attempts should be made to procure the materials at right price because a
slightest reduction in the price results in substantial absolute monetary gain. It should
be noted that the low bidder is not always the best bidder. %he right price can be availed
through searching for the proper sources of supply and comparing all such sources on
some scientific basis. %he !uotations of various suppliers are compared after bringing
them all on some common footing. 8ue considerations are also given to the factors such
as regularity of supply, character of the supplier his financial standing etc. %he price is
an agreement between the buyer and the suppliers the former considers his utility while
the latter takes into account his cost of production. %he market conditions greatly effect
the price determination.
1ight source: %he right source is a key consideration in purchasing as all other #1$s. %he
suppliers are not only supplying the re!uired materials but they also supply the
information such as probable market conditions and the resultant price trends, general
industrial climate and the business environment. %he selection of right source involves
the considerations such as search for the more and more sources, selection of the
appropriate source through some scientific analysis, negotiating with the selected
supplier and post purchase rating of the supplier.
TYPES OF PU3C&0S#(G
%he effectiveness of purchasing activities can be enhanced by proper organi)ation and
coordination of the activities. %here are four types of purchasing system:&
9. 0urchase made as per re!uirement: Po purchase is made in advance. 0urchase is
done as need arises. 7ethod usually applied for emergency re!uirement or infre!uent
:. .ontract 0urchasing: .ontract of material is given to an agency. It has an
advantage that low price of those materials whose cost fluctuates highly.
<. 7arket 0urchase: 0urchase is made from the market to take advantage of price
4. (chedule 0urchasing: It is a cyclic purchase model. schedule of purchase is
made and it is used for those commodities whose price does not fluctuate.
Centralized pur-,aing means buying and managing purchases from one location
for all locations within an organi)ation. %his can also be run by a central location buying
in to a distribution warehouse that feeds smaller warehouses. %his is called a hub and
spoke system. %he responsibility and authority to purchase, lease, or rent materials,
supplies, goods, e!uipment, or services are placed with the 8ivision of 'inance and
/perations, 0urchasing and (tores 8epartment.
0urchasing is centrali)ed to:
• reali)e economy, efficiency, and effectiveness in the procurement function@
• pursue !uality assurance and standardi)ation@
• maintain the highest standards of ethics@
%he control by a central department of all the purchasing undertaken within an
organi)ation. In a large organi)ation centrali)ed purchasing is often located in the
head!uarters. .entrali)ation has the advantages of reducing duplication of effort,
pooling volume purchases for discounts, enabling more effective inventory control,
consolidating transport loads to achieve lower costs, increasing skills development in
purchasing personnel, and enhancing relationships with suppliers.
0d$antage of Centralized Pur-,aing
• Xolume purchasing * Ehen the district is able to purchase a single item in mass,
vendors are often willing to provide a discount. 0urchasing in mass to take advantage
of discounts is called volume purchasing.
• Earehouse * In order to take advantage of volume pricing, the district purchases
items in bulk. Xendors typically re!uire that the district take delivery of the items in
mass. %hese bulk purchases are stored in the warehouse until the items are re!uested
by the sites.
• (ave time in researching products * Individuals spend hours to research the
products and to find best price. %he purchasing department has resources to help
reduce the time to research products.
Diad$antage of Centralized Pur-,aing
• 6ood processes are not without their shortcomings. 5isted below are some of the
challenges of buying in a school district and suggestions on how to help the 0urchasing
department minimi)e their effects.
• +xtended procurement time * /ne problem that is commonly associated with
centrali)ed purchasing is the perception “it takes too long". In reality, the purchasing
department processes vendor re!uisitions typically within one ,9- day. %ypically the
delay in the re!uest is either: time spent to research the product, funding sources
,account code check and budget approval-, vendor stock status, and shipping.
De-entralized pur-,aing is the opposite where each plant or office buys what it
needs. %his operation allows any employee to buy what he needs. Zou can also run this
operation with a designated buyer assigned to the site to do the buying. %he more
decentrali)ed an operation is, the less control the home office has. Zou have a
duplication of effort in buying and less buyer speciali)ation. Zou lose discounts on
!uantity buys. Zou lose freight options based on dollars or weight. lso some support is
lost from the supplier as there is no single contact for the supplier to deal with. Xolume
buying may not be calculated for all your sites.
0d$antage of de-entralized pur-,aing
dvocates of decentrali)ation claim that local management has the incentive to control
cost when the local operation is set up as a profit center. 7any companies operate with a
mixed system. %he central operation may buy major commodities but allow local
operations to buy all 71/ supplies.
It is difficult to change from decentrali)ed purchasing to centrali)e
purchasing. +mployees feel their privileges are being taken away. %hey feel they are
losing control of their site. (ome will refuse to really cooperate in the changes in hopes
to making the program look unsuccessful.
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