V Semester FOM

FRONT OFFICE MANAGEMENT – V SEMESTER
PLANNING AND EVALUATION OF FRONTOFFICE OPERATIONS
The management process
Initial activities Pre-operating activities Operating activities Appraisal

activities
Organizing
Leading
Planning Evaluation
Coordinating
Controlling
Staffing
Change in procedures
Revision in plans
Planning
Purpose of a plan:
It is important to prepare a plan keeping in view the necessities of the hotel.
A plan is an important aspect of business. It serves the following three
critical functions:
 Helps management to clarify, focus, and research their hotel’s

development and prospects.
 Provides a considered and logical framework within which a hotel
can develop and pursue business strategies over the next three to
five years.
 Offers a benchmark against which actual performance can be
measured and reviewed.
Planning teams have to determine which concepts produced in a

brainstorming session warrant further consideration. This task is not always
This is not an original work, compilations from various sources including books, publications,
documents, webpages etc. for facilitating curriculum at IHM Bangalore only. Page 1
easy, but if the team refers to stated goals and objectives, then the job is
much simpler. In this case, the overall purpose of the Program would be to
maximize sales by the front office staff of front office, food and Beverage
department, gift shop, and health facilities products and services. The team
must decide which area or areas would be most profitable. During the
brainstorming part of planning for a point-of-sale front office, the team
should also consider supporting concepts that will play an important part in
the success of a sales program—incentives. The point-of-sale plan should
include an incentive program, which entails understanding employees’
motivational concerns and developing opportunities for employees to achieve
their goals. This will encourage cooperation among the frontline employees
who will implement the point-of-sale plan. The front office manager is
responsible for determining how each employee is motivated. Many
motivational strategies require a financial commitment by management.
These costs must be included as a budget line item. When the owner can see
additional sales being created as a result of these programs, the idea of
sharing some of the profit is more acceptable.
Planning tool
VISION
MISSION STATEMENT
LONG RANGE PLAN
BUSINESS PLAN
MARKETING PLAN PREPARING BUDGET
Vision
Vision: outlines what the organization wants to be, or how it wants the
world in which it operates to be an "idealized" view of the world. It is a long-
term view and concentrates on the future. It can be emotive and is a source
of inspiration.
For Example, The vision of a business hotel may be to be the best hotel for
business travelers in Bangalore, to provide comfort as well as all business
related facilities and to build a name and a brand in India and globally.
Mission
Defines the fundamental purpose of an organization or an enterprise,

succinctly describing why it exists and what it does to achieve its vision.
For Example: The mission statement of a business hotel may be to meet the
needs of the business traveler by providing desired products and services
(sleeping and meeting rooms, food and beverage) and a business center.
Mission of the Front office Department
 To establish and maintain the standards of quality within the department

 To implement hotel policies
 To have all material required to administer department for maximum
profits
 To achieve recognition for the finest and personnel and guest services
available
 To provide consistent and ongoing training for all employees
 To provide each arriving and departing guest the opportunity to obtain

assistance with their luggage and transportation and ensure their
predetermined rooming procedures on a consistent basis.
 To display friendly and courteous service at all times.
Long range plan
These are long term plans made keeping in mind a longer duration of time.
An example of a long range plan of a business hotel may be: To obtain 60 %

of all business meeting revenues in Bangalore within the next 7 years. To
conquer the business market segment and achieve operational profits double
that of the initial 2 years.
Marketing Plan
Marketing strategies adopted by the front office Managers vary from hotel to
hotel, some of the common strategies mostly followed are:
 Processing reservations done directly without the help of middlemen

like travel agents.
 Hotel provides prompt service to the enquiries of the customer mails.
Usually the queries are answered within an hour.
 The services provided by the housekeeper must be excelled.
 80% of the customers are repeated which means there is customer
loyalty to the maximum extent.
 The hotel shall use its perishable capacity 3 times a day for the
purpose of maximizing the revenue.
 Overbooking to be done at 5 %.
 Average occupancy rate to be maintained at 60%.
 Providing 35-40% discount on off season.
Revenue strategy
 One to one revenue management to be followed, meaning each

individual will be a market segment in itself.
 Technology will support calculating the total customer Value and the
potential total customer spend, based on history and future potential
from demographics, to determine the rate and what availability to

offer to a potential guest.
 Focus on the Revenue per available guest (REV PAG) and total
customer Value.
It is the most important of all managerial functions. Without planning,

direction and focus Front Office department would be chaotic. Improper
planning results in FOM overly involved with tasks that are unrelated or
inconsistent with the department’s goals.
1st Step – Define department’s goals
Near Term Long Term
E.g. raise occupancy % E.g. Improve Guest Satisfaction scores
2nd Step – Set specific measurable objectives.
3rd Step – Determine strategies to attain these objectives.
ORGANISING:
 Delegate work fairly among staff.

 Ensure work gets delivered timely.
 Determine order in which tasks are to be performed
 Establish deadlines
 Flow of communication in organization
 Relationships between different organizational levels
 Unity of command
 Direct reports
 Line positions
 Staff positions
 Chain of command
COORDINATING:
 Bringing together resources and use them to attain planned goals.

 Involves working with other departments like sales, accounts,
housekeeping etc.
 Requires managers to use soft skills & managerial skills like planning,
organizing etc.
 Span of control
 Responsibility
 Accountability
 Formal work group
 Informal work group
STAFFING:
 Recruiting & staffing those best qualified for various positions.

 Involves scheduling employees.
 Most Front office departments have guidelines for staffing based on
formulas for calculating the no of employees required to meet guest &
operational needs.
 Job description
 Job specification
 Orientation
 Induction
 Professional development programs
LEADING:
 Involves overseeing, motivating, disciplining and setting an example.

 Analysis of work to be done.
 Organizing the tasks in a logical order, considering the environment in
which the work will be performed.
 Pitches in to ensure that the workload is under control.
 Leading often extends beyond front office. Senior Managers from other
departments depend on FOM for his strong leadership skills.
 Develop and implement effective training programs.
 Effectively delegate work assignments.
 Motivate employees to attain organizational goals.
 Provide positive discipline and negative discipline.
 Effectively facilitate the work of employee teams.
 Utilize a participative management style and empower their staff
members.
 Vary their leadership style.
CONTROLLING:
 Means a system of internal controls to protect the assets of the hotel.

 It works only when the managers believe in the importance of the system
and follow SOPs.
 The control ensures that the actual result matches with planned results.
 Standards must be established.
 Actual performance must be measured.
 Variance between standards and actual performance should be assessed.
 Corrective actions to address variations.
 Corrective actions must be evaluated to assure success .
EVALUATING:
 Determines the extent to which planned goals are attained.

 It also involves reviewing and revising front office goals.
 It must be given priority.
 Managers must evaluate the extent to which goals established in basic
planning documents.
 Performance appraisal
 Must be timely and objective requires ongoing collection of information to
assure data needed for evaluation are accurate and available.
3 important Planning functions:
1. Establishing room rates

2. Forecasting room availability
3. Budgeting for operations
Establishing Room Rates
 Front office will always have more than one rate category for each
of its guest rooms.
 Differences are based on criteria such as room size, location, view,
furnishing and amenities.
 There could be different types of rack rates. For example the
commercial hotels have rack rates based on the number of people
in the room whereas the resorts have same rates for one or two
people.
 Rack rate gets its name from the manual filing system at the front
desk called a “Room Rack” hence the term “Rack Rate”.
 FO employees are expected to sell rooms at rack rate unless he

qualifies for special rates.
Special Rates:
1. Corporate / Commercial rates: The rates offered to companies that

provide frequent business for the hotel or its chain.
2. Group Rate: The rate offered to groups, meetings and conventions
using the hotel for their functions.
3. Promotional rates: The rate offered to individuals who may belong to a
particular group. This may also be extended during especially low
occupancy periods to any guest to promote occupancy.
4. Incentive Rate: Rates offered to affiliate industries such the travel
agencies and airlines because of potential referral business.
5. Family Rate: The rate reserved for families with children.
6. Package plan rate: A rate that includes a room in combination with
other events or activities such as breakfast, golf, sightseeing etc.
7. Complimentary rooms: A rate provided to special guests or important
industry leaders. It means the guest will not be charged for the room
during the stay however he/she might have to pay for the extras such
as the telephone, dining etc.
Sales of the rooms at special rates are rigidly controlled as it may affect
the ARR and the room revenue.
Some guidelines to be implemented by the FOM:
 Ensure FO staff adheres to the prescribed policies.
 They should be explained the circumstances under which these
rates can be given.
 Obtain proper approval when applying a special room rate.
 Should consider factors such as operating costs, inflationary factors
and competition.
Establishing rack rates for room types, determining discount categories and
special rates are major managerial functions. Room rates serve as market
positioning statement since they directly reflect service expectations to the
hotel’s target market. Room rate positioning is critical to a hotel’s success.
Pricing Objectives:
Objectives are what we want to accomplish. Without them it is hard to
assess where we are going or how we are going to get there.
Pricing Objectives can be divided into 3 categories. The first is Profit

Oriented Pricing objective. This is established in order to attain a certain
targeted profit or to generate the maximum profit. In the former target
profits are expressed as a percentage returns on investments or sales. The

Hubbart formula which is applied in the hotel business is a typical
application. In case of profit maximization the firm sets the price that will
give the maximum profit. Yield management responds to this objective.
The second category is of Sales Oriented Pricing Objectives focusing on sales

volumes and/or larger market share and not so much on profits. Needless to
say this is not without danger. Sales oriented pricing can fit into competitive
strategy on a firm. An example is low cost carriers.
Last but not the least is Status Quo-Oriented Pricing Objectives, where the
position related to the competitors is the main target. This can be called
competitive pricing. A firm tries to match its competitor’s price closely. This
is the follow the leader approach.
Pricing Approaches:
Before dealing with few of the most popular methods of pricing let us start
with the distinction made by Morrison (1989) between unsophisticated,
sophisticated and multistage approach. We limit ourselves to an overview.
Unsophisticated approaches are made on not so much on research or costs

but more on the intuition of the entrepreneur. Morrison mentions 4 such
approaches:
The Competitive Approach: Here the firm sets prices based on the
competitors’ prices. The approach is also called as the Common Sense
Approach. Management looks at comparable hotels and sees what they are
charging for the same product. These properties are often called as the
“competitive-set”. Usually they comprise of 6-10 properties in a market that
are most important competition for a property. The competition is based on
Location, Property ratings, Property Type, Brand Identification etc. The
thought behind this approach is that the hotel can charge only what the
market will accept, and this is usually dictated by the competition. This
information is available through various public domain sources, including a
periodic ‘Blind-Call’ to competing hotels.
The Blind call does not identify the hotel making the call and simply asks for
availability and rates on specific days.
Market Condition would be determined by:
 How does the product rates compare to those in the competition?
 Are the rates higher or lower than competing hotels?

 How are the rates affecting revenue and the business share in the
market?
 What is the occupancy percentage of the hotel and what is the
occupancy percentage of the competing set?
 Trends that have emerged during the last six months of study.
Problems with this approach
 If the property is new, construction cost will most likely be higher than
those of the competition.
 The value of the property is not taken into consideration. With the
property being new and perhaps having newer amenities, the value of
the property to guests can be greater.
The Market Condition Approach is really a marketing approach which allows

the hotel market to determine the rate. It may not take fully into account
what a strong sale effort may accomplish. It can in effect, allow the
competition to determine the rates and this could significantly affect the
profitability of a hotel’s operation.
The Follow-the-Leader Approach: This is very similar to the competitors’

approach. This is often followed by smaller market share companies. (E.g.
Burger King may follow McDonald’s price changes).
The Intuitive Approach: This is based on the entrepreneur’s intuition.
The Rule-of-Thumb or Traditional Approach: there are two well-known

rule-of-thumb approaches. The first concern the hotel sector, where it is
believe that $ 1 should be charged per $ 1000 investment cost at 70%
occupancy. In other words a hotel investment of $ 100000 per room should
have a room rate of $ 100. The second concern the restaurant sector, where
multiplying the food cost of a particular dish by a factor 2.5 is still common
practice.
Target Pricing: the price is usually set in terms of a specific return on

investment.
Price discounting and price discrimination: where discounting means

offering rates below the rack rate or those advertised, and discriminatory
pricing means selling prices to some customer groups at higher or lower

prices. Discounting and discriminatory pricing can be based on criteria such
as market choice, firm of service provided, place and time.
Cost – plus pricing: where in amount of profit percentage is added to the

estimated cost of a product or service.
New product pricing: This evolves setting a different price for a new
product. There are different strategies for introducing a new product; the
two best known are price skimming (an artificially high priced for a new
product) and penetration pricing (introducing a new product at a very low
price).
Price lining: where the firm pre-establishes prices that it feels confident will
attract customers.
Psychological pricing: where slightly lower prices are used to give

customers the impression that they are receiving something extra.
Leader pricing: where a firm offers a product for a short time at a price
below its actual costs, or offers something special with the purchase of a
product (e.g. a beer with the purchase of spaghetti).
In the Multistage approach, pricing should consider nine factors.
1. Competitors
2. Customer characteristics
3. Customer demand volumes
4. Costs
5. Channels
6. Corporate objectives
7. Corporate image and positioning
8. Complimentary services and facilities
9. Consistency with marketing mix elements and strategy
Break-even Analysis
Break-even analysis is a technique widely used by production management

and management accountants. It is based on categorizing production costs
between those which are "variable" (costs that change when the production
output changes) and those that are "fixed" (costs not directly related to the
volume of production).
Total variable and fixed costs are compared with sales revenue in order to
determine the level of sales volume, sales value or production at which the
business makes neither a profit nor a loss (the "break-even point").
The Break-Even Chart
In its simplest form, the break-even chart is a graphical representation of

costs at various levels of activity shown on the same chart as the variation
of income (or sales, revenue) with the same variation in activity. The point
at which neither profit nor loss is made is known as the "break-even point"
and is represented on the chart below by the intersection of the two lines:
In the diagram above, the line OA represents the variation of income at

varying levels of production activity ("output"). OB represents the total fixed
costs in the business. As output increases, variable costs are incurred,
meaning that total costs (fixed + variable) also increase. At low levels of
output, Costs are greater than Income. At the point of intersection, P, costs
are exactly equal to income, and hence neither profit nor loss is made.
Fixed Costs
Fixed costs are those business costs that are not directly related to the level
of production or output. In other words, even if the business has a zero
output or high output, the level of fixed costs will remain broadly the same.
In the long term fixed costs can alter - perhaps as a result of investment in
production capacity (e.g. Adding a new factory unit) or through the growth
in overheads required to support a larger, more complex business.
Examples of fixed costs:

- Rent and rates
- Depreciation
- Research and development
- Marketing costs (non- revenue related)
- Administration costs
Variable Costs
Variable costs are those costs which vary directly with the level of output.
They represent payment output-related inputs such as raw materials, direct
labour, fuel and revenue-related costs such as commission. A distinction is
often made between "Direct" variable costs and "Indirect" variable costs.
Direct variable costs are those which can be directly attributable to the
production of a particular product or service and allocated to a particular
cost center. Raw materials and the wages those working on the production
line are good examples.
Indirect variable costs cannot be directly attributable to production but they

do vary with output. These include depreciation (where it is calculated
related to output - e.g. Machine hours), maintenance and certain labour
costs.
Semi-Variable Costs
Whilst the distinction between fixed and variable costs is a convenient way
of categorizing business costs, in reality there are some costs which are
fixed in nature but which increase when output reaches certain levels. These
are largely related to the overall "scale" and/or complexity of the business.
For example, when a business has relatively low levels of output or sales, it
may not require costs associated with functions such as human resource
management or a fully-resourced finance department. However, as the scale
of the business grows (e.g. Output, number people employed, number and
complexity of transactions) then more resources are required. If production
rises suddenly then some short-term increase in warehousing and/or
transport may be required. In these circumstances, we say that part of the
cost is variable and part fixed.
Break-Even Analysis: (For Hotels)
One of the most common tools used in evaluating the economic feasibility of
a new enterprise or product is the break-even analysis. The break-even
point is the point at which revenue is exactly equal to costs. At this point, no
profit is made and no losses are incurred. The break-even point can be
expressed in terms of unit sales. That is, the break-even units indicate the
level of sales that are required to cover costs. Sales above that number
result in profit and sales below that number result in a loss. The break-even
sales indicate the dollars of gross sales required to break-even.
It is important to realize that a company will not necessarily produce a

product just because it is expected to breakeven. Many times, a certain level
of profitability or return on investment is desired. If this objective cannot be
reached, which may mean selling a substantial number of units above break-
even, the product may not be produced. However, the break-even is an
excellent tool to help quantify the level of production needed for a new
business or a new product.
Break-even analysis is based on two types of costs: fixed costs and variable
costs. Fixed costs are overhead-type expenses that are constant and do not
change as the level of output changes. Variable expenses are not constant
and do change with the level of output. Because of this, variable expenses
are often stated on a per unit basis.
Once the break-even point is met, assuming no change in selling price, fixed
and variable cost, a profit in the amount of the difference in the selling price
and the variable costs will be recognized. One important aspect of break-
even analysis is that it is normally not this simple. In many instances, the
selling price, fixed costs or variable costs will not remain constant resulting
in a change in the break-even.. And these changes will change the break-
even. So, a break-even cannot be calculated only once. It should be
calculated on a regular basis to reflect changes in costs and prices and in
order to maintain profitability or make adjustments in the product line.
Contribution margin
Contribution margin is the calculation that gives the profitability of an

individual product.
Contribution Margin =Revenue-Variable cost
Revenue reflects income from the specific product line.
Variable Cost reflects outlays to produce and sell the product line (input
costs, sales, commissions, delivery, direct marketing)
Contribution margin helps gauge the success or failure of company's product

line by allowing the comparison of one line's profitability to another. If one
product has a higher contribution margin than another, the manager has a
few options: they may aim to reduce the variable cost or increase the sale
price to increase the contribution margin. Or they may discontinue the line
altogether.
Contribution margin excludes fixed costs. Fixed are locked-in costs that
are not directly associated with sales and considered outside the realm of
contribution margin's aim to give a good way to compare product lines side
by side.
Weighted Average Contribution Margin Ratio
Average contribution margin that is weighted to reflect the relative

contribution of each operating department of a multi-department firm to its
ability to pay fixed costs and to generate income.
Why do you need it?
Consider a situation in which a business manager determines that a

particular product has a 35% contribution margin, which is below that of
other products in the company's product line. This figure can then be used to
determine whether variable costs for that product can be reduced, or if the
price of the end product could be increased.
If these options are unattractive, the manager may decide to drop the
unprofitable product in order to produce an alternate product with a higher
contribution margin.
For example, a group may be negotiating for a lower room rate with a hotel.
In order to make an appropriate group profit, the hotel may require some
sort of additional food and beverage revenue like a continental breakfast or
group dinner. In other cases the hotel may be unwilling to negotiate room
rate but may add value to group by hosting a complimentary cocktail

reception. The same applies to guests coming on a package plan. The
package is priced competitively to attract guests, but the internal
distribution of revenue should be designed to maximize profits.
CMRw = Total non-room revenue - total non-room revenue center

variable costs
________________________________________
Total non-room revenue
Forecasting room availability
In simple words it is forecasting predicting the number of room available for

sale on any future date. It helps in managing reservations & effective room
management especially when full house.
Advantage of forecast: -
a. Management of reservation.
b. Effective room management.
c. Scheduling of employees in front office.
d. Scheduling of employees in housekeeping.
e. Scheduling of employees in Restaurants.
f. For ordering supplies in HK & Kitchen.
Information helpful in room availability forecasting: -
1) A thorough knowledge of the hotel & the surrounding areas.

2) Market profile of the hotel services.
3) Occupancy date of the past several months &for the same period of
the previous year.
4) Reservation trends & a history of reservation lead time (how far
advance reservation are made)
5) A listing of special events schedules in the surrounding geographic
area.
6) Business profiles of the specific groups booked for the forecasted
dates.
7) The number of non-guaranteed & guaranteed reservation &estimate of
number of no-show.
8) The percentage of rooms already reserved &the ‘cutoff date’ for

rooms’ blocks held for the forecasted dates.
9) The impact of city wide or multi hotel groups &then potential influence
on the forecast dates.
10) Plans for remodeling or renovating the hotels that would change the
number of available rooms.
11) Construction or renovation plans for competition hotel in the area.
Why forecast rooms?

 To determine the projected income & related expenses &then effect on
profit & house statistics.
 F&B, HK, Engineering rely upon the house count for scheduling staff,
using facilities, planning, renovations, ordering supplies, etc.
 Revenue in terms of cash flow into the hotel.
 Forecasting data are important because they are used in calculating
various daily operating ratios that help determine the number of rooms
available for sale.
A) Percentage of no-show: - The proportion of reserved rooms that the

expected guests, did not arrive to occupancy on the expected date of
arrival. This ration helps us to decide when to sell rooms to walk-in
guests.
% of no-show = Number of rooms of no show * 100

Number of rooms reserved
They may be measured in relation to various different types of
reservation & based on business mix for a better occupancy in forecast.
How to control no- show?
a) Advance deposits.
b) Calling guest before arrival date/time.
c) Over booking rooms (FOM decides this factor).
d) Sources of booking rooms should be as per management policies.
B) Percentage of walk-in. = Number of room walk-in * 100

_________________________________
Total Number of room arrivals
C) Percentage of over-stay: Rooms occupied by guests who stay beyond
The originally scheduled departure dates.

Percentage of overstay = Number of over-stay rooms * 100
Number of expected departure
How to regulate over-stay?
Confirm/reconfirm each guest’s departure date at registration. Some guests
may already know of a change in plans or a mistake may have been made in
the original processing of the reservation.
Note: that overstay are a problem if specific rooms e.g. Suites are blocked
for arriving guests.
D) Percentage of under-stays. Rooms occupied by guest who checkout
before their scheduled departure dates.
Percentage of Under-stay = Number of under-stay * 100

Number of expected departure
Note: it becomes difficult to sell vacant rooms, which subsequently result in
loss of room revenue.
How to regulate under-stay?

Confirm/reconfirm each guest’s departure date at registration. Some guests
may already know of a change in plans or a mistake may have been made in
the original processing of the reservation.
A. Forecast formula
Number of rooms available for sale =
Total number of rooms
-Number of out of order rooms
-Number of stay-over
-Number of reservations
+Number of room reservations*No-show factor (% of no-show)
+Number of room under-stays
-Number of room over-stays
B. Sample forecast forms
Different forecasts are prepared for different purpose:

I. Monthly forecasts- Reviewed by FOM, F&B Mgrs, to forecast
revenues, project expenses & to develop staff schedule.
II. Ten-day forecasts- this consists of (jointly prepared by FOM &
reservations manager.
a) Daily forecasted occupancy figures, which include room arrival,
room departure, rooms sold & number of guests.
b) Number of group commitment, with a listing of each group’s
name, arrival & departure dates, number of rooms reserved,
number of guests & also the quoted room rates (CVGR) or group
rate.
c) A comparison of previous periods forecasted & actual room count
& occupancy percentage.
d) It may also be prepared by F&B/ other departments. The
forecast should be distributed to all the departments concerned
to help them plan their staffing for the said period.
The FO manager & the reservation manager jointly develop the 10-day
forecast, at most hotels, possibly in conjunction with a forecast committee.
Many properties develop their 10-day forecast from their yearly forecast. A
10-day forecast usually consists of:
 Daily forecasted occupancy figures including room arrivals, room
departures, and rooms sold & number of guests.
 The no. Of group commitments with a listing of each group’s name,
arrival & departure dates, no. Of rooms reserved, no. Of guests &
perhaps quoted room rates.
 A comparison on previous periods forecasted & actual room counts
& occupancy percentages.
A special 10-day forecast may also be prepared for F&B, banquets &
catering operations. This forecast usually includes the expected no. Of
guests which is often referred to as the house count. Sometimes the house
count is divided into Group & Non Group categories so that the hotel’s
restaurant managers can better understand the nature of their business &
their staffing needs.
It helps various hotel depts. Plan their staffing & payroll levels for the
upcoming period. The 10-day forecast should be completed & distributed to
all department offices by midweek for the coming period. This forecast can
be especially helpful to the HK dept. A 10-day forecast form is developed
from data collected through several FO sources.
First, the current number of occupied rooms is reviewed. The
estimated number of overstays & expected departures are noted. Next,
relevant reservation information is evaluated for each room by date of

arrival, length of stay & date of departure. These counts are then reconciled
with reservation control data. Then the actual counts are adjusted to reflect
the projected occupancy percentage of No shows, anticipated under stays &
expected walk-ins. These projections are based on the hotel’s recent history,
the seasonality of its business & the known history of specific groups
scheduled to arrive.
Finally conventions & other groups are listed on the forecast to alert
various department managers to possible periods of heavy/light check-in
check-outs. The number of rooms assigned to each group may also be noted
on the sheet.
How to go about it?

1. Review the current room occupancy.
2. Note the estimated number of under-stay &over-stay.
3. Evaluate relevant reservation information for each room & guest (date
of arrival, date of departure, etc.)
4. Adjust actual counts based on projected percentage of no-show,
anticipated under-stay & expected walk-in.
5. List conventions, groups, to alert everyone concerned.
III. Three day forecast- It is updated reports that reflect a more current
estimate of rooms’ availability. It details any changes from the 10-day
forecast. It is intended to guide management in fine-tuning its plans.
A 3-day forecast is an updated report that reflects a more current estimate
of room availability. It details any significant changes from the 10-day
forecast. The 3-day forecast is indented to guide management in fine tuning
labour schedules & adjusting room availability information. In some hotels, a
brief daily revenue meeting is held to focus on occupancy & rate changes for
the next few days. The result of this meeting is often included in the 3-day
forecast.
CHECKLIST FOR REVISING FORECAST
 List all group bookings & transient reservations on the books.

 Examine arrivals, departures & group information for given period.
 Determine if demand for the particular period is high or low.
 Chart the peaks & values on the graph to better identify high/low
demand.
 Have sales agents call competing properties for rates & consider
adjusting your rates.
 Make decisions to maximize revenue during each time period.
Room count considerations

It is important to know exactly how many rooms are available for sale for a
hotel to operate near 100% occupancy.
Once procedure for gathering room count information is established planning
procedure can be extended to longer periods of time to form a more reliable
basis for revenue, expense & labor forecasting.
And with the advent of computerization, most hotels have their room
inventory on the property management system, which automatically
accomplishes various tasks.
Forecasting rooms revenue
It is based on past financial information.

One way is to analyze room revenue for past few years & calculate the
percentage increase per annum &predict for the budget year.
The other way is based on past occupancy & ARR’s. Percentage increase in
annual occupancy % & ARR’s per annum is considered
Estimating expenses
Most expenses at front office are ‘direct expenses’ (expenses versus
revenue). Use of past data may be made to calculate the percentage of
room revenue that each item may represent. These figures can then be
applied to the total forecasted room revenue resulting in monetary estimate
for each expense category for the budget year.
Typical room division expenses are as follows: -
 Guest room laundry (house-keeping)

 Hotel Merchandising (guest directories & brochure)
 Guest supplies
 Reservation expenses
 Minor stationery expenses
 Global distribution system (GDS) fees
 Travel agents/tour operators commission
 Payroll & related expense
Cost per occupied room = Total expenses/occupancy
Note: We also have to identity here which costs are rising as a percentage of
revenue & why. Then we must also develop control measure. Another
method of estimating expenses is to calculate variable cost per room sold &
multiply these cost by projected occupancy.
Refining budget Plans
Most hotels refine expected results of operations & revise operations budgets
as they progress through the budget year. Re-forecasting operations budget,
such variance may indicate that conditions have changed since the budget
was prepared.
EVALUATION
Evaluating room sale here is not to discuss how to analyze profit-maximizing

views of the external (Competitors), however we discuss how we evaluate
the room sales from the internal side, which is an oversight that made by
hierarchy and done continuously.
The monitoring is meant is how we look at an office job in front office

department directly, which is related to the sale of room, and because of
there is had sales revenue, such as income of room, outlets or others, e.g.
transportation income, business center, telephone, massages, and others,
and also all the payment paid by cash, credit, debit or other.
With controlling is done continuously (Daily Basis), we’ll be evaluating

whether the sale was conducted rooms is right or not, and of course will
ultimately maximize the profit in the front office department.
a. Rate applied
b. Existence of POS bills
c. Guest signature on POS bills
d. Guest over credit limit
e. Removal of documentation after guest departure
The management function of evaluating determines the extent to which

planned goals are, in fact, attained. This task is frequently overlooked in
many properties or it is done haphazardly. Evaluating also involves

reviewing & when necessary helping to modify front office goals.
Some of the tools used by the front office manager/Revenue manage in

evaluating the dynamic task of operating the rooms are as follows:
 Daily operations report
 Occupancy ratios
 Rooms revenue analysis
 Hotel statement of income
 Rooms division income statement
 Operating ratios & ratio standards
 Room division budget reports
Daily operations report: Also known as the manager’s report, the daily
report, or the daily revenue report contains a summary of the hotel’s
financial activities during a 24-hour period. The daily operations report
provides a means of reconciling cash, bank accounts, revenue, & account
receivable.
Occupancy ratios: This ratio measures the success of the front office in
selling the hotel’s primary product: guest rooms. The occupancy ratio’s
taken in to consideration viz. Number of rooms available for sale, number of
rooms sold, number of rooms occupied by guest, number of guests, net
room revenue. Generally, these data are contained on the daily operations
report.
Room revenue analysis: Front office employees are expected to sell rooms
at the rack rate unless a guest qualifies for an alternate room rate. A room
rate variance report lists those rooms that have not been sold at rack rates.
With this report, FOM can review the use of various special rates to
determine whether staffs have followed all appropriate front office policies &
procedures. In a hotel with a computerized front office system, the computer
can readily prepare a room rate variance report.
Hotel statement of income: This statement provides important financial

information about the results of hotel operation for a given period of time.
The period may be one month or longer, but should not exceed one business
year.
Rooms’ division income statement: The hotel accounting division

prepares the room division schedule. It shows a detailed listing of income
from the various units. By carefully reviewing the rooms division income
statement, the FOM may be able to develop action plans to improve the
divisions financial status & services.
Room division budget reports: The hotel accounting division also

prepares monthly budget report that compares actual revenue & expense
figures to budgeted amounts. These reports provide timely information for
evaluating front office operations. This budget also shows both monthly
variance & year-to-date variance.
Operating ratios & ratio standards: These ratios assist the managers in
evaluating the success of front office operation. Operating ratios should be
compared against proper standards - here being the budgeted percentages.
Ratios are meaningful only when compared against useful criteria such as:
- Planned ratio goals
- Corresponding historical ratios
- Industry averages.
BUDGETING FOR OPERATION
The hotel annual operating budget is a profit plan that addressed all revenue
sources & expense items. Annual budgets are divided into monthly plans &
which in turn are divided into weekly plans. Budget plans are standards
against which the management evaluates the actual result of operations. An
accurate room’s budget is vital to the overall budget because room revenue
& profits are usually greater than any other department. Budget planning
requires closely coordinated efforts of all management personnel. FOM
prepare the room revenue forecast Accounts department provides all
departments with statistical data. It also coordinates all departmental
budget plans, & prepares a comprehensive hotel budget. The GM & financial
controller review all departmental budgets &prepare a budget report.
Elements requiring changes are returned to HOD’s for review & revision.
A. Forecasting rooms revenue
It is based on past financial information.
i) One way is to analyze room revenue for past few years &
calculate the percentage increase per annum &predict for the
budget year.
ii) The other way is based on past occupancy &ARR’s.

Percentage increase in annual occupancy % & ARR’s per
annum is considered
B. Estimating expenses
Most expenses at front office are ‘direct expenses’ (expenses versus
revenue). Use of past data may be made to calculate the percentage of
room revenue that each item may represent. These figures can then be
applied to the total forecasted room revenue resulting in monetary
estimate for each expense category for the budget year.
Typical room division expenses are as follows: -
 Guest room laundry (house-keeping)

 Hotel Merchandising (guest directories & brochure)
 Guest supplies
 Reservation expenses
 Minor stationery expenses
 Global distribution system (GDS) fees
 Travel agents/tour operators commission
 Payroll & related expense
Note: We also have to identity here which costs are rising as a

percentage of revenue & why. Then we must also develop control
measure. Another method of estimating expenses is to calculate variable
cost per room sold & multiply these cost by projected occupancy.
C. Refining budget Plans
Most hotels refine expected results of operations & revise operations
budgets as they progress through the budget year. Re-forecasting
operations budget, such variance may indicate that conditions have
changed since the budget was prepared.
Budgeting
A budget is a business plan usually expressed in monetary terms. To make
meaningful decisions about the future, a manager must look ahead. One
way to look ahead is to prepare budgets and forecasts. A forecast may be
very simple. By contrast in a large organization a budget might entail
forecasts up to five years. (such as furniture and equipment purchases.),as
well as requiring day today budgets(such as staff scheduling)budgets not
expresses in monetary terms could involve numbers of customers to be
served, number of rooms to be occupied, number of employees required,
etc. the three main purpose of budgeting can be summarized as follows:
1. To provide organizes estimates of future unit sales, sales revenues,

expenses, net income, staffing requirements, or equipment needs, broken
down by operating period and department.
2. To provide management with long term and short term goals. These goals
can be used to plan future activities.
3. To provide information for control. This is important so that actual results

can be evaluated against budget plans and adjustments, if necessary can be,
made
Types of budgets
 Long-term
 Short-term
 Capital
 Operating
 Department
 Master
Long term versus short-term budgets
Budgets can be generally considered to be either long term or short term. A

long-term budget would be plan for anywhere from 1 year to 5 years ahead.
Such budgets concern the major plans of the organization (expansion,
creation of a new market, financing and other related matters) and are often
called strategic budgets. For such long term plans evolve the policies
concerning the day to day operations of the business and thus the short
term budgets.
Short-term budgets could be for a day, a week, a quarter, or a year. Such

budgets involve middle management in using its resources to meet the
objectives of the long term plans.
Fixed versus flexible budgets
A fixed budget is based on a certain level of activity or sales revenue, and

expense estimates are based on this level of sales. No attempt is made to
introduce greater or lesser levels of sales revenue and thus, different
expense amounts in this budget. The disadvantage of this budget is that if
the actual sales level differs from the budgets sales level, there is no plan
covering this possibility and expenses can only be then adjusted in the short
run buy guess work.
For example, supposes the room’s department budget in a hotel is based on

the average year round room occupancy of 70 %.operating costs (e.g.
supplies, payroll) are based on this level of occupancy. If the actual
occupancy dropped to 60% because of unforeseen economic conditions, it
might be difficult for the rooms’ department manager to know, in the short
run, what the new payroll level should be the same is true for all the other
expenses.
A flexible or variable budget is prepared based on several levels of activity.

in our rooms depar5tment example, sales revenue could be forecasts for
60%,70% and 80% occupancy levels(or as many levels as appropriate)as
the actual year progresses, it can be determined at which level the operation
is going to fit best and the appropriate expense levels will have already been
determined for this level. In other words adjustments are easier.
With a flexible budget, variable expenses will change with the volume of
sales revenue, but fixed expenses will remain the same. For example a
budget might be prepared for a restaurant based on a number of sales
revenue. Expenses are calculated based on each different revenue level.
Variable expenses might be expresses as a percentage of sales revenue or
as amount per unit sold. However advertising expenses might be a fixed
expense and will be left the same, regardless of the actual level of ales
revenue. In other words regardless of the volume of the sales revenue, a
definite fixed amount is budgeted for this expense. a truly flexible budget
will show all expenses that are in fact variable by their nature as
percentages for each sales revenue operation(such as restaurant sales
revenue and room ales revenue)fixed cost will be shown as an amount.
Capital budgets
A capital budget is a plan for the acquisition of new (or replacement of

existing) fixed assets. A five year replacement schedule for hotel room
furnishings is a capital budget.
Operating budgets
An Operating budget concerns the ongoing projections of sales revenues and

expense items that affect the income statement. For example a forecast of
sales revenue for a restaurant for a month is in an operating budget.
Similarly in amulet department hotel the forecast of the total payroll
expense for the year is an operating budget.
Department budgets
A department budget is prepared for a hospitality organization that has

multiple sales revenue units .a department budget would therefore be for a
specific department and would show the total forecasted sales revenue less
operating expenses for that department. Alternatively if the department
does not directly generate any sales revenue (e.g. engineering department),
a department budget could be made showing the anticipated expenses in
detail for an operating period. Generally such department budgets are
prepared annually and broken down month by month.
Master budgets
A master budget is the most comprehensive of all budgets. Generally a

master budget is prepared for a year and includes a balance sheet for a year
hence and all the departmental income and expense for the next year.
The most important long-term planning function performed by front office

managers is budgeting front office operations. The hotel’s annual operation
budget is a profit plan which addresses all revenue sources & expense items.
Annual budgets are commonly divided into monthly plans, which, in turn, are
divided into weekly (& sometimes) daily plans. These budget plans become
standard against which management can evaluate the actual results of
operations.
The budget planning process requires the closely coordinated efforts of all
management personnel. While the front office manager is responsible for
room revenue forecasts, the accounting division will be counted on to supply
department managers with statistical information essential to the budget
preparation process. The accounting division is also responsible for
coordinating the budget plans of individual department managers into a
comprehensive hotel operations budget for top management’s review. The
hotel general manager & controller typically review departmental budget
plans & prepare a budget report for approval by the property’s owners. If
the budget is not satisfactory, elements requiring change are returned to the
appropriate division managers for review & revision.
The primary responsibility of the front office manager in budget planning are
forecasting rooms’ revenue & estimating related expenses. Rooms’ revenue
is forecasted with input from the reservations manager; expenses are
estimated with input from all department managers in the rooms division.
The hotels annual operation budget is a profit plans that addresses all
revenue sources & expense items. Budgets are important tools for managing
cash flow, controlling costs, and making effective management decisions.
The ability to accurately predict future profits requires a firm understanding
of operating costs.
MAKING OF FRONT OFFICE BUDGET
Front office is one of the major revenue generating departments, and is

responsible for the guest satisfaction. This department’s effect and profitable
operations affect the overall profitability of the hotel. As we know that
approximately 70 % or even more of revenue is generated from these
departments, so it becomes all the more necessary that more than any other
department a more conscious budgeting/budgetary control is exercised on this
department.
When we talk about Front Office department, we mean the budgeting of the
various aspects of Front Office department. For the purpose of study, let us
say that the front office department of a large hotel has various sections such
as reservation, lobby and bell desk, although in a smaller capacity even the
telephones and cash & bills may also be come under this dept. now we talk
about the budgeting of front office, we mean the Departmental Master Budget
of Front Office, which include budgets for each section such as reservation,
lobby and bell individually. In other words, the FOM should get individual
budgets from each of these areas.
Let us say that reservation section shall give its budget which will mean the
budgeted figures of reservations for a specific period of time (no. of
bookings). This budget shall also include the cost of reservation system, that’s
to say, cost to be incurred on various equipment and stationary used in the
system, for e.g. , reservation racks, their replacement , new purchase,
maintenance etc., also the cost incurred on stationary like Guest registration
cards, reservation forms, etc. Similarly, other equipment like more filling
racks for the section, more telephone lines and such other equipment which
may be necessary for the efficient functioning of the section and ultimately in
achieving the budget/targeted figures. Further the reservation budget shall
also include the budget figure of labor, which means two things:-firstly, it
means that for the specific period for which the budget is being made, what
will be the requirement of staff, i.e., no. of people. Now this will depend on
the budgeted figure of reservation and if they are more the labor cost and
labor related cost for that period. The budget for reservation section will be
prepared by the Reservation Manager and he must take help and suggestions
of his juniors while preparing a draft budget. The budget can be classified
under various heads such as Fixed Budget and Operating Budget.
On similar lines, the sub-section budget shall be the prepared by other

sections of Front Office, such as Lobby and bell Desk. Many hotels combine
the Bell Desk budget with lobby budget. These budgets are also made on the
lines of fixed or static budget, ales budget and operating expenses budget and
labor and labor related expense budget, etc. The Lobby budget is usually
prepared by Lobby Manager, but if it includes the Bell desk budget also, which
normally is the case, and then he is assisted by the bell captain in compiling
this budget.
Finally, on the basis of the sub-division budgets, which are prepared by the
Reservation Manager and Lobby manager, the FOM prepares a front office
department budget for the hotel. The FOM takes the help and guidance from
lobby manager and reservation manger in doing so. Normally, the budgets for
front office department are prepared on quarterly basis. While preparing the
budget guidance is taken from past figures and information. The marketing
and sales dept. of the hotel also helps in preparing the final budget as they
can also forecast the future/expected business. Further, it’s also important
that the Lobby manager and Reservation manager be given this budget for
implementation once it’s approved by the FOM and then by the GM and
controller and they by the Board of Directors.
Once the budget has been approved and given for implementation, it the
duty of the operating section to ensure that the workers adhere to the
budget. Any deviations must be observed, recorded and notified. This
reasons why the deviations was there must be out and analyzed. From time
to time the refining of the budget should also be done (as per the need) by
the FOM and approval of higher authorities for the same must be taken and
further communicated to the concerned persons.
Preparing an accurate budget requires the ability to forecast sales with a

reasonable amount of certainty, several different methods are used to
predict future sales, but some techniques are more accurate than others.
The easiest technique is averaging- calculating the average monthly sales in
the past.
Sales averages
Past financial information is called historical data. The more recent the
historical date used, the more accurate the average. In most cases, sales
figures from more than three years in the past often are not reliable for
predicting future sales. To calculate an average, add the amounts and divide
the sum by the number of amounts.
However, room sales usually are not constant, but continually change in
response to economic conditions, social trends, and other factors. For
instance, leisure travel is seasonal, and the greatest share of resort sales
occur during the vacation and holiday seasons in summer and winter.
Projecting expenses
One key element in budget preparation is the estimating/projecting
expenses. Since expenses are categorized both in relation to operated
departments (direct/indirect) and how they react to changes in volume
(fixed and variable), the forecasting of expenses is similar to the approach
used in forecasting revenue. However, before department heads are able to
estimate expenses, they must be provided with information regarding the
following:
 Expected cost increases for supplies, food, beverages, and other

expenses
 Labor cost increases, including the cost of benefits and payroll taxes.
Expenses are of two types: fixed expenses and variable expenses. A

fixed expense remains constant and is not dependent on sales and these
include charges such as depreciation, insurance expense, property taxes,
rent expense, and similar expenses. A variable expense fluctuates as sales
rise or decline. Expenses such as stationery charges, room amenities
expense that varies as per the occupancy of the establishment are termed
as variable expenses.
Factors affecting Budget Planning
i. Accommodation: This is one of the most critical key factors operating in

hotels. When all the rooms are sold, it is impossible to increase the volume
of room sales except through an increase in room rates. When the sales
budget is being prepared it is essential to examine patterns of occupancy
to establish what level of room sales may realistically be expected during
the forthcoming budget year. Where there is a high degree of room sales
instability, evidenced by pronounced swings in occupancy rates, it is
desirable to examine the possibility of shifting demand from peak to off-
peak periods.
ii. Shortage of labour: This particular key factor is potentially powerful, but
there is no evidence that it exerts much influence on the volume of hotel
and restaurant sales. In some locations, labor shortages may, in fact, be a
severe limiting factor.
iii. Consumer demand: Consumer demand is often found to be a potent key
factor. Its operation may be due to several reasons. The price level of the
establishment may be too high, and this may result in a low ARR or low
occupancy or both.
iv. Quality of management: The management and its operation however do
not have a bearing over short period. Over longer periods, the quality of
management will have a direct and powerful influence on the volume of
sales generated.
v. Other factors:
1. Political state of affairs
2. Natural calamities
3. Terrorist activities
4. Climate conditions
5. Events (sports, festival celebration, etc)
6. Importance of the city (climate, industries- IT, BPO,
Biotechnology)
Capital/ Operation Budget for Front Office

The main objective of the cash budget is to determine the cash inflow, cash
outflows and the resulting cash balance over a future period.
In order to determine future cash inflows it is necessary to identify the

sources of cash flows. These will normally be: room, food and beverage
sales and sales of the minor operating departments (fitness
center/florist/laundry/business center). Each of these sources may generate
cash credit sales. Cash sales constitute an immediate cash inflow. Credit
sales, however, take time to result in a cash inflow.
Most expenses for front office operations are direct expenses in that they
vary in direct proportion to room’s revenue. Historical data can be used to
calculate an approximate percentage of room’s revenue that each expense
item may represent. These percentage figures can then be applied to the
total amount category for the budget year.
Typical room’s division expenses are payroll and related expenses:

guestroom laundry (linen, guest towels), guest supplies (bath amenities,
toilet tissue, and matches), hotel merchandising (in-room guest directory,
hotel brochure), and travel agent commission and reservation expenses.
When these costs are totaled and divided by the number of occupied rooms,
the cost per occupied room is determined. The cost per occupied room is
often expressed in rupees and as a percentage.
a) Operating Budget
The method used in the preparation of hotel and catering budgets is. I now
fairly well established. The first step is to predetermine the volume of sales.
In order to do this it is essential to examine the following: (a) past sales; (b)
current trends; and (c) relevant economic and political aspects. .
The analysis of past sales is always the starting point in the preparation of
any sales budget. I t is necessary to establish the overall trend in the
volume of sales as well as the trends in the principal elements of the sales
mix. It is useful to calculate the percentage change in room, food and
beverage sales as well as changes in the turnover of minor operated
departments over the last two or three years. I t will not be enough to
consider only the absolute sales values. The volume of sales depends on the
number of units sold and the price per unit. It follows, therefore, that it is
equally important to establish trends in room occupancy, room rates, the
number of covers sold and the average spending power.
In addition to past sales, it is essential to look at the reality of the current

situation, and decide what trends exist which are likely to influence the
volume of sales over the next budget year. Points, which are relevant in this
context, are: trends, in hotel and restaurant occupancy; composition of
guests by country of origin; trends in the sales mix of the establishment,
etc.
The state of the national economy and political developments are sometimes
more critical than the internal environment of the business. Government
economic and fiscal policies have a powerful effect on the level of disposable
incomes of the population. Similarly government decisions have an
important effect on the state and prosperity of particular industries and
regions. Hotels and restaurants, which cater for foreign tourists, have to look
beyond their frontiers, and consider developments overseas and their effect
on the inflow of foreign tourists.
When the budgeted volume of sales has been predetermined, it is necessary

to decide what turnover will be achieved by every revenue producing
department. From the budgeted room, food and beverage sales as well as
sales of minor revenue producing departments will be deducted budgeted.
(Controllable) departmental expenses. Thus the budgeted departmental
profit for each revenue producing department is arrived at. Where there is
an appreciable volume of banqueting sales, a separate budget will be
prepared hr that department.
The second step is to deal with the multiplicity of (essentially fixed)

expenses such as administration and general expenses; advertising and
sales promotion; heat, light and power; repairs and maintenance;
depreciation, rates and similar expenses. All these are frequently referred to
as ‘undistributed operating expenses’, because in most situations no attempt
is made to distribute or apportion them to the revenue producing
departments.
From the point of view of budgetary control two methods of approach are
possible here. In smaller units all such expenses may be predetermined for
the next budget year without attempting to allocate/apportion them to
departments. In larger units it is possible to analyze such expenses as
between those which are controllable and those which are not: and allocate
the controllable items to the respective non-revenue producing departments
such as: accounts; control; personnel and training and maintenance. The
uncontrollable expenses would then appear separately and be the
responsibility of top, rather than departmental, management. Which of these
two solutions is chosen depends on the size and the special circumstances of
each hotel. As far as the basic method is concerned there is no difference
between hotels and restaurants.
The operating budgets dealt with above may be of two kinds: fixed budgets
and flexible budgets. A fixed budget is one, which is not influenced by the
level of activity. Thus most of the budgets for the undistributed operating
expenses (e.g. administrative and general expenses, advertising and sales
promotion, repairs and maintenance, etc.) will be fixed budgets because
changes in hotel and restaurant occupancy will not have a direct influence on
them. With regard to flexible budgets the position is quite different.

Expenditure on food, beverages, the cost of sales in the minor operated
departments, part-time and casual labour, etc. will be directly influenced by
the volume of sales. Such budgets will, therefore, be dependent and directly
influenced by the level of activity. All establishments will, therefore, have
some fixed and some flexible budgets, depending on the response of their
operating cost to changes in the volume of sales.
b) Capital Budgets
Examples of capital budgets have already been given. The most important
capital budgets in the context of hotel and catering operations are cash
budgets and capital expenditure budgets.
Cash budget
The main objective of the cash budget is to predetermine the cash inflows,
cash outflows, and the resulting cash balance over a future period.In order
to determine future cash inflows it is necessary to identify the sources of
cash inflows. These will normally be: room, food and beverage sales and
sales of the minor operated departments. Each of these sources may
generate cash and credit sales. Cash sales constitute an immediate cash
inflow. Credit sales, however, take time to result in a cash inflow. Thus
credit sales in the banqueting department may take an average of almost
two months before conversion into cash (i.e. payment by banqueting
customers). On the other hand, credit room sales may take an average of
only a few days. It is necessary, therefore, in the case of credit sales to take
into account the average time lag in relation to each element of the credit
sales mix.
Cash outflows may be categorized variously depending on the actual system

of budgetary control in operation. We may divide the total cash outflows
under headings such as: food costs, beverage costs, cost of sales of minor
operated departments, wages and salaries and other expenditure. The
alternative, which is preferable and more generally used in larger units, is to
divide the total cash outflow under headings such as: departmental
expenses (distinguishing between cost of sales, departmental wages and
salaries and other departmental expenses), controllable departmental
expenses of non-revenue producing departments and other expenses.
In most situations it will be found that there are non-routine receipts and
payments e.g. dividends received on company investments, bank interest
received payments for fixed assets, etc. It is essential to make provision for
such non-routine items in each cash budget.
Capital expenditure budget
The capital expenditure budget will make provision for expenditure on

kitchen plant and equipment, furniture, extensions to premises and similar
items. In most cases the capital expenditure budget will extend over one
year. Sometimes, however, it may' cover a period of time in excess of one
year, particularly in the case of extensions and more substantial projects
which take a long time to complete.
This particular budget will, to some extent, be affected by the cash budget
as, inevitably; any proposed capital expenditure must depend on the
availability of cash over the budget period. The cash budget will, therefore,
have to be consulted before a decision is made on the timing of each item of
capital expenditure. All new acquisitions of plant, furniture, etc. listed in the
capital expenditure budget will be incorporated in the budgeted balance
sheet.
Other capital budgets
Debtors and creditors budgets are important elements of the system of

budgetary control in many organizations. Hotels and restaurants, however,
have a high proportion of cash and short-term credit sales and keep
relatively low stocks and, for these reasons, budgets for debtors and
creditors are not usually prepared. In any case, figures of the outstanding
debtors and creditors may be obtained from the cash budget, as illustrated
later in this chapter.
Similarly, one does not often prepare a budget for food and beverage stocks.
Where a system of budgetary control is in operation a standard stock level
for food and beverages is fixed, and this is quite adequate for most
purposes, including the construction of the budgeted balance sheet.
Forecasting Rooms Revenue

Forecasting is simply the process of estimating the levels of some future
activity such as room sales. After an initial sales forecast is been made, the
hospitality operation must plan to ensure the desired outcome is achieved.
Past/historical financial information often serves as the foundation on which

the FOM‘s build revenue forecasts. One method of rooms revenue
forecasting involves an analysis of rooms’ revenue from past periods. Rupee
and percentage difference are noted and the amount of rooms’ revenue for
the budget year is predicted.
The other way is based on past occupancy &ARR’s. Percentage increases in

annual occupancy % & ARRs per annum are considered.
Advantages of budgeting
 Since the budgeting process involves department heads and possibly

other staff within the department it encourages their participation and
thus improves communication and motivation. Therefore these
operating personnel can better identify with the plans or objectives of
the organization.
 In preparing budget, those involved are required to consider
alternative courses of action. For example, should the advertising
budget be spent to promote the organization as a whole or would
better results be obtained if emphasis were placed more on a
particular department?
 Budget outline in advance the sales revenue to be achieved and costs
involved in achieving these revenues. After each budget period the
actual results can be compared with the budget. In other words a
standard for comparison is predetermined and subsequent evaluation
of all those involved in the operation is possible.
 In case of flexible budgets, the organization as a whole and each
department within it are prepared for adjustments to any level of
activity between the high or low (minimum and maximum sales levels)
 Budgeting forces those involved to be forward looking
 Budgeting requires those involved to consider both internal and
external factors. Internal factors include such matters as rooms
available, room rates etc. external factors include the competition, the
local economic environment etc.
Disadvantages of budgeting
 The time and cost to prepare budgets can be considerable. Usually

larger the organization the greater is the amount of time, and thus the
cost of preparing budgets.
 Budgets are based on unknown factors (as well as known factors that
can have a major impact on what does actually happen.
 Budget preparation may require that confidential information be
included in the budget, which may not remain confidential
 The “spending to the budget” approach can be a problem. if an
expense budget is overestimated there can be tendencies to find ways
to spend the money still in the budget as the end of the budget period
arrives. This tendency can be provoked by a desire to demonstrate
that the budget forecast was correct to begin with and to protect the
budget from being cut for the next period.
The budget cycle
The budget cycle is a five part process that can be summarized as follows:
1. Establishing attainable goals or objectives
Factors to be considered:
1. Limiting factors (for e.g. a hotel cannot achieve more than 100%)
2. Lack of skilled labour and supervisory personnel
3. shortage of capital
4. management policies
5. area of increasing costs
6. customer demand and competition
2. Planning to achieve goals or objectives
3. Comparing actual results with those planned and analyzing the

differences
4. If required, take corrective action
5. Improve the effectiveness of budgeting
Departmental budgets
The procedure:
1. Estimate sales revenue levels by department

The following should be considered when making monthly sales
revenue projections
 past actual sales revenue figures and trends

 current anticipated trends
 economic factors
 competitive factors
 limiting factors
2. Deducting estimated direct operating expense for each

department
3. combining estimated departmental operating incomes and
deducting estimated undistributed expenses to arrive at net
income
These undistributed expenses usually include the following:
 administrative and general

 marketing
 property operation and maintenance
 utilities expenses
 property taxes
 rent
 insurance
 interest
 depreciation
 income taxes
Budgeting in a new operation
Forecasted average number operating total

Occupancy * room * of rooms * days = room sales
Percentage rate available available revenue
Budgetary Control
Budgetary control is the financial control through budgets ,which means

fixing responsibility for budgeted results to the managers concerned ,for
example ,fixing responsibility on the front office manager for promoting
results and meeting the targeted/budgeted figures of sales ,cost and staff
etc. it is a control technique because it provides a standard for evaluation of
actual performance. Hence budgetary control means responsibilities that are
assigned to managers usually expressed in terms of items such as sales
targets, profit margins and cost ceilings etc. hence budgetary control is
process of finding out what is being done and comparing actual results with
the corresponding budget data in order to approve accomplishments or to
remedy differences by either adjusting the budget estimates or correcting
the cause of th3e differences. Budgeting is the formulation of plans for a

given future period in numerical terms.
As such, budgets are statement of anticipated results in financial terms.

Another very important aspect of budgeting is perpetual comparison of
budgeted figures to actually achieved figures of the business for that specific
period for which the budget was prepared. Further, this means top ascertain
the variance (difference between the budgeted figures and the actual figures
which may bee plus or minus, and also at times may be no difference).
Where there is a system of budgetary control in operation, current operating
results are viewed frequently, weekly, monthly, annually or any other
period, depending upon the profile of the policy of the business (in order to
ascertain to what extend the business is in accordance with the policy of the
business). Budgetary control has been defined as the “establishment of
budgets relating to the responsibilities of the executives to the requirement
of the policy and the continuous comparison of actual with the budgetary
results either to secure by individual action the objective of that policy or
provide a basis in the budget.”
The most important aspect of budgetary control is the planning which goes
into the making of budget and its effectiveness in the control of Hotel
operations.
Objective of Budgetary Control
The objective of budgetary control may be summarized as follows:-
 To give a practical expression to the aims and objective of the

business.
 To provide a detailed plan of the Front Office operations with respect
to the particular training period.
 To ensure better cooperation of various departments/sub-departments
(functioning of the business).
 To set the “benchmark” (standards) against which the managerial
performance is to be measured.
 To ensure an economical use of the resources of the business.
 Budgeting serves to measure efficiency and provide definite plans to
all concerned.
Essential of Sound Budget(budgetary control)
 To be effective, a budgetary control system should be based on the

following guidelines:-
 Define clearly the responsibilities and authorities for preparation and
administration of budget (what should be controlled and who shall
control).
 Sound organizational capabilities (clear thinking) is essential for
budgeting.
 An accurate and adequate system of measuring and recording
performance. The budget making must receive total support of top
management (evaluation).
 Timely and regular system of reporting of current events should be
developed to keep responsible people informed of actual results for
timely correction. There must be an effective accounting and costing
system.
 Clearly defined policies should be established for all phases of the firm.
 Free and frank communication between the different department if the
organization through regular meetings of budget committee. All levels
staff must understand and support the system. All managers expected
to administrate and live under budget must have a part in their
preparation, so that they understand the budget and are loyal to them.
 Efficient forecasting and research is necessary for the formulation of
realistic budgets. Sufficient time should be allowed to obtain desired
results from budgeting. The budget periods should be appropriate to
the nature of the firm.
 Human factor is very important in budgeting. Due credit should be
given for the job well done. Persons unable to achieve budgeting
results should be held accountable. Budget should be designed only as
tools and not to replace management. Budget should not be overdone
to seriously compromise the authority of managers.
 The system should be designed to meet the needs and conditions of
the particular enterprise. Proper flexibility through alternative budgets,
regular revisions, etc...And effective follow-up are important aspects of
sound budgeting.
 Key to effective budgeting is developed and providing standards, by
which a manger’s works can translated into needs for manpower,
material, money and other resources.
 Budgetary control should be used in situations where other control
systems are more suitable.
 It should not be implied to all departments in first go and should be
started on a small scale and extended as experience is gained.
How Budgetary Control is Applied
Budgetary control is enforced to accomplish the goals and objectives of the

Hotel. For this it’s important to follow the course of actions that would make
the realization of the budgeted targets possible. Whenever the manager find
that there are deviations in actual from the budgetary targets., he must
immediately find the cause thereof and promptly decide and implement the
corrective action to set those deviations right.
Advantages of Budget Control
Some of the advantages of budgetary control are as follow:-
 Eliminates uncertainty:-it provides a planned approach to every

activity of the Hotel within which expenses have to be incurred and
results achieved. This eliminates uncertainty and ensures that the
Hotel is not caught unaware in the face of actual situation.
 Results of various brains:-since top management brains are
involved in making the budget, this ensures against being framed
according to subjective standard and a single individual.
 Good incentives to workers at times:-high standard budget at
times provide incentive to employees to works towards the fulfillment
of it.
 Optimum use of capital resources:-It guides the Hotel to use its
capital resources in most profitable manner.
 Easy availability of working capital:-the cash receipts and
expenses budget ensures that sufficient working capital and other
necessary resources for efficient functioning of the business are
available.
 Effective coordination:-budgeting makes coordination between
various departments more effective as the goals of each department
are interlinked with other for the achievement of Hotel goals in
totality.
 Responsibility can be pinpointed:-this pinpointed the person on
whom the responsibilities can be fixed.
 Spotlight on deviation:-deviations can be pinpointed and areas of
weakness can be disordered and suitable corrective action can be
taken to bring the performance to required standards.
 Optimum utilization of man, Machine, and material:-budgeting
aims at distributing production program according to production
capacity and makes most effective utilization of men, material and
machine possible.
 Serves a beacon light:-budgeting provides a benchmark for actual
performance and shows the path to achieve the standards.

Limitations of budgeting
Budgeting suffers from the following disadvantages:-
 Budgets estimates and can never be hundred percent accurate. They

are as good as the data and forecasts on which they are based.
Inflation and rapid changes in business environment tend to distort
budget data before they are put to operations.
 The budget is simply a tool to efficient system of budgeting can
achieve nothing without effective planning and control.
 Budgets cannot guide as to what action should be taken. Similarly, its
not on outlives program that must be adhered to under all conditions
 Sound system of effective supervision is necessary and the lack of it
would make the budget ineffective.
 Budgeting entails the danger of infelicity as everybody becomes
conscious that they adhere to the projected budget, otherwise they
may be called inefficient. The budget is not a strait jacket thing but a
measure of performance and a guide which should be adjusted to
meet new situations.
 Budget may be misused by the bosses to find faults in employee and
restrict performance rather than improve it.
 The initiative and creativity in an employee may be hampered if the
supervisor and bosses stick to budget strictly.
 Budgeting is a time-consuming process and involves expenses. There
is a tendency of going into excess details which restricts freedom of
action.
 Budgeting goals may lead people to supersede the enterprise goals.
Budgeting may be used to hide inefficiencies as past practices become
evidence for the present. The fact that certain expenditure was made
in the past becomes evidence of its irresponsibleness in the present.
There is the need of safeguard against over-emphasis on factor that
happens to be easier to observe.
 Success of budgeting depends on the motivation of people who are to
install and use budgets. People can’t change their habits and attitude
overnight. To be effective, budgeting should be gradual and
cooperative exercise.
 Budget making is a tempting exercise. It provides an opportunity to
grapple with situations that are yet to arise. But sometimes in their
desire to indulge in “shadow boxing” the hotel management may
overlook the cost thereof. Budget making can be effective only when
there is some correlation between the cost of the system and the
benefits to be derived from it.(lack of cost benefits analysis)
 Budgeting is but a means to an end, then end being successful
attaining of budgetary targets into actual results. However, there is
not always the case. It’s too often assumed that introduction of a
budget program by itself is not enough to guarantee its successful
execution.(lack of matching efforts)
 Although budgeting is a big help in arriving at proper decisions, yet
very often it’s seen as a substitute rather than as a tool of
management, whose job is to choose the best amongst the alternative
courses of action, turns a blind eye to its responsibility of decision
making, then the situation may lead to harmful consequences for the
business.
REFINING BUDGET
The term refining can also be called as amending the budget, or adjusting
the budget or modifying the budget. As the term days, this means to change,
which may be increasing or decreasing the figures of the already prepared
forecast figures. Budget, is a forecast, that is to say, a projection of figures
for future and is based on certain assumptions which may be past figures or
expected activities for future. Now since future is indefinite so whatever base
we mighty have taken of the future, may occur or not may occur at all or
may occur partly or more than the expectation and hence when it will come
to actual for that period, the actual figures may match, may be more or less
than the projected figures. Suppose the budget is for a period of one year,
then it’s always advisable to monitor the output after a particular interval of
time, say every quarterly. Further, let us say, for e.g., suppose we have
budgeted sale of Rs.1, 00, 00,000 over a period of 3 months, which means
approximately our sale every month shall be Rs 33, 33,333. Now at the end
of the every month we must check whether we arte meeting this figure. If, in
actuality, we are meeting the figures at the end of , say, first month, that
means our forecasted targeted sale is all right (keeping a margin of
reasonable % of change), but if there is a lot of difference which may be both
minus or plus, then it means that our initial budget planning are wrong. Such
variances have to be studied and analyzed immediately and corrective action
taken, which means, based on new circumstances, new targeted figures are
also to b calculated. for e.g., suppose we project 10,000 foreign tourists in
the first quarter of the financial year, that is from April to June, and by the
middle of February we find that there are lots of problems in the country,
such as unstable govt., highly increased terrorist activities in the region.
Department budget plans are commonly supported by detailed information

gathered in the budget preparation process and recorded on worksheets and
summary files. These documents should be saved to provide an explanation
of the reasoning behind the decision made while preparing departmental
budget plans. Such records may answer questions that arise during budget
review. These documents may also provide valuable assistance in the
preparation of future budget plan.
If no historical data is available for budget planning, other sources of
information can be used to develop a budget. For example, corporate
headquarters can often supply budget information to its chain affiliated
properties. Also national accounting and consulting firms usually can supply
useful data for the budget development process.
Regardless of the extensive efforts and the sophisticated methods used in
formulating operation budgets, most large hospitality properties refine
expected results of operations and revise operations budgets as they
progress through the budget year. Reforecast is normally suggested when
actual operating results begin to vary significantly from the operations
budget. Such variance may indicate that conditions have changed since the
budget was first prepared, and that the budget should be brought into line.
Some organization will start re-forecasting at the beginning of the budget
year and continue to reforecast every month for the entire year.
Zero base budgeting
Zero bases budgeting (ZBB) is a useful technique for controlling costs. As its
name implies, no expenses can be budgeted for or incurred unless they are
justified in advance. ZBB requires each department head to justify in
advance the entire annual budget from a zero base.
Since most costs (food, beverage, labour, supplies and others) are linked to
sales revenue levels in a fairly direct way, budgeting for them is relatively
easy. However there are several expenses in the hospitality industry not
related as directly to sales revenue levels. These indirect or undistributed
expenses include the following:
 administrative and general

 marketing
 property operation and maintenance
 utilities
These undistributed costs are not normally charged to the operating

departments but are kept separate. An operation might also have other fixed
costs (e.g. property taxes, insurance, interest, and rent) that are not
charged to the operating departments. However the level of these costs is
not is usually partially imposed form outside the operation.
With ZBB each category of cost is broken don into decision units that are
then analyzed. The department head responsible for the cost prepares the
analysis. After each decision unit is analyzed, management ranks all decision
units, and the final budget is allocated according to this ranking.
ZBB can be used by hospitality managers to control these undistributed

expenses. ZBB properly implemented, cannot only control costs, but may
lead to costs reduction from previous levels. The main reason for this is that
it puts previously unjustified expenses on the same basis as requests for
increases to the budget-increases to the budget-increases that must also be
justified.
Decision units
One of the key elements in success implementation of ZBB is the decision

unit. The number of decision units will vary with the size of each
establishment. For example a small operation with only one employee in its
marketing department would probably have only one decision unit for
marketing expenses. A larger organization may have several decision units.
Each decision units is competing for the same limited resources. Once
decision units have been established, next step for each department head is
to prepare an analysis of each separate decision unit of his or her
responsibility. This analysis is carried out each year before the new budget
period begins. For each decision unit, the department head will document
the following:
1. the unit’s objective

2. the unit’s current activities
3. justification for continuation of a unit’s activities
4. alternate ways to carry out the activities
5. recommended alternative
6. required budget
Ranking process
Once the decision units’ activities have been documented, the general
manager begins the review process. To determine how much money will be
spent, and in what areas of departments, the general manager must rank all
activities in order of importance to the organization. Once this order is
established, the activities would be accepted up to the total predetermined
budget for all activities.
The major difficulty in ranking is to determine the order of propriety for all
the operation’s activity under review. In small organization, with the aid of
a committee if necessary this might not be too difficult. In larger operations,
each department head might be asked to rank all activities that come within
his or her authority. The procedure can then continue through successive
levels of middle management until they reach the general manager.
Advantages of ZBB
 It concentrates on the cost of each department’s activities and budget

and not on broad percentage increases
 Funds can be reallocated to the departments or areas providing the
greatest benefit to the organization
 It provides a quality of information about the organization(because all
activities are documented in detail)that would otherwise not be
available
 All levels of management are involved in the budgeting process, which
encourages these employees to become familiar with activities that
might not be normally under their control.
 Managers are obligated to identify inefficient or obsolete functions
within their areas of responsibility
 It can identify areas of overlap or duplication
Disadvantages of ZBB
 It implies that the budgeting method in use is not adequate. this may
or may not be true
 It requires a great deal more time, effort, paperwork, and cost that
traditional budgeting methods
 It may be unfair to some department heads that, even though they
may be very cost effective in managing their departments, are not as
capable of others in documentation and defense of their budgets. They
might thus find themselves outranked by other more vocal, but less
cost effective, department heads.
Variance analysis
 Comparison of budget figures to actual figures

 variance/budgeted figure * 100 = percentage variances
 Useful technique for isolating the causes of differences
Advantages of budgeting
 They involve participation of employees in the planning process, thus

improving motivation and communication
 They necessitate ,in budget preparation, consideration of alternative
courses of action
 They provide a goal ,and a standard of performance to be
accomplished ,with subsequent comparison of actual results with that
standard
Disadvantages of budgeting
 The time and cost to prepare budgets can be considerate

 Budget preparation my require certain confidential information which
may not remain confidential
 The spending to the budget approach can be a problem. If an expense
budget is overestimated there can be tendency to find ways to spend
the money.
Suggested reading
Principles of hotel front office operation – Sue Baker, Jeremy Huyton, Pam
Bradley
Hotel front office management: James A. Bardi
Managing front office operations: Michael L. Kasavana, Richard M. Brooks
Back office operations and administration: Dennis L. Foster
PROPERTY MANAGEMENT SYSTEMS
The application of computers to accommodation management is of great

interest because this is generally the area that offers the greatest potential
for improvement. Cost reduction, better management information, de-
skilling, reduced training and the prospects of the most interesting and
worthwhile work are the areas of application.
The strategic hotel computer
As computer technology diffuses through society, soon a totally new kind of

business structure may emerge. This will affect other types of commercial
and non-commercial organization.
At this point, all levels of the management will be involved in decision

making. But the direction which the hotel, will take, in competitive sense,
will be selected on the basis the output from the information system. Thus,
flexibility will be possible by the application of many automated functions,
most of which will be supported by the computers.
The computer will be serving top management more directly and it will,
therefore, be used to formulate strategic decisions. The differences between
the strategic and tactical levels will be noticed in many ways. Firstly, there
will be a great expansion in the use of external data sources. An outer circle
of activities might be added to the network of information processing
facilities that will underpin society and business as a whole. There will be
much more integration between these and between the information services
of the hotel itself. And finally, most of these procedures will completely
automatic, using self-regulatory control system.
THE TOTAL HOTEL MANAGEMENT SOLUTION SYSTEM
People may be comfortable with technology that allows them to depend

upon when and where they still want to deal with human beings on
occasions. Any technological enhancement that impedes guest comfort- no
matter how much money it saves- is not a profitable solution for hotels. This
technology should be so developed so as to improve efficiency and provide
the guests with unique hotel experience.
A total hotel management operations system should normally include:-
1. Front office system,

2. Back office system, which includes five main areas such as:-
A. Financial accounting system

B. Material management system
C. Personal management system
D. Food and beverage cost control system
E. Management information system.
1. Front office system

The system should include the following aspects:
Reservation
The reservations system handles all reservation and related activities within
the hotel. This subsystem allows for individual (F.I.T.). Tour group,
conference and miscellaneous group bookings to be made for any data in the
future. The reservation accounting function allows for advance deposit
handling and transfer of charges to future reservations. Room availability is
also checked for every reservation request, depending on room type and the
number of rooms requested. It handles room-wise, type-of-room-wise
enquiry, makes the accept/refuse decisions and may also prepares letters for
conformation, refusal, etc. the reservation system handles deposits and
generates necessary reports.
Guest history
The guest history system provides for a personal, thoughtful, and efficient
guest service and hospitality. Personal histories on each individual; guest
compiled, maintained and updated automatically. This information is
available for review by the front office staff.
Registrations
The registration system is linked by information transfer from the
reservation system. Pre-registration, guest room assignment, and on-line
room status inquiry facilities faster check-in. it has very powerful features
for inquiry on in-house guest information. It handles group registration key
cards & electronic keys and handles walk-in arrival.
Guest accounting, departure and payment

The guest accounting system provides accurate, on in-line posting of guest
charges, Split multiple folios with specific billing instruction can be set up for
each guest if required. Speedy group check-out is possible with the group
auto-printed, settlement and check-out features, master and split folios, bills
inspection, non-posted charges, foreign exchange, voucher control, receipts,
payment methods.
Housekeeping
The housekeeping system consists of constant updating of room status
within the hotel. An interface with EPABX is also there. There is lot of other
functions like updating status of renovation VIP status, Discrepancy etc
Telephone operator
The telephone operator system enables operator to have ease of access to
information about all in-house guests, expected arrivals and departures. An
optional interface EPABX system should allow for automatic posting of
telephone charges to the guest folios.
Banquets
The banquet system is a unique system that caters to banquet reservations.
The extensive inquiry capability of the banquet system gives information on
booking positions for any particular hall, function, day or time. Billing and
posting of transactions to the sales ledger also should be handled by this
module.
Point-of-sale
The points-of-sale system is designed for the complete order taking and
cashiering functions at any outlet. In-house guest information is available to
the cashier, enabling personalized attention as well as timely, accurate
posting to the guest ledger. The system incorporates all the functions of
cash, register and is particularly effective in room service.
Night auditing
The night auditing system is the most important function in the daily
operations of the hotel. It posts room tariff automatically, performs the final
balance of the entire day’s transactions and closes the day’s business. A
comprehensive audit trail and accounting reports help reconcile all
transactions in a short span of time.
Electronic cash register

it handles automatic pricing, display and keyboard change control, sales
analysis, time clocks, etc.
The back office system

The back office system should include the following aspects:
 Material management system (MMS)
It covers the entire material management functions such as requirement,
planning, purchase, receipts, stock accounting. Issues are viewed as an
integrated activity. The system provides information for effective decision
making and book-keeping.
Purchase requirements reporting aids better order decisions.
Historical purchase vendor/cost analysis for lower purchase costs.
 Automatic reminders on pending purchase orders ensure timely
supplies.
 Easy monitoring of stock especially for perishable/limited shelf-items.
 Assists administration of purchase and stores department.
 Provides automatic stock accounting.
 Aids spot stock- taking.
 Provides data for general ledger and dept costing.
 Comparison of historical information for trend analysis.
 Management information system

The management information system should provide statistical information
to the management to assist in decision making and control. Automatic MIS
data collection should provide comprehensive business and sales analysis.
The timely accurate information provided would ensure increased revenues,

higher occupancy and cost savings.
 Financial information system

Information required for basic accounting functions and financial
management. Of a hotel should be incorporated in a comprehensive set of
integral modules
 Integration of accounts receivable, accounts payable, stores
accounting and payroll with general ledger.
 Significant aid to accounts administration and audit/reconciliation.
 Monthly trial balance and profit and loss statement prepared.
 Timely, updated, accurate financial information for financial control.
 Faster collections and better information on account receivables.
 Forecasts of cash flows for better cash management.
 Timely statement of accounts for debtors/creditors.
 Comparison of budgeted and actual revenue/expenditure.
 Food and beverage cost control system

This module is the most important area of concern in hotel operations- the
savings possible through control of food and beverage material usage.
 Should establish standards for raw material usage through recipe
explosion.
 Should highlight raw materials where variance is exceptionally high.
 Should automatically pick up issues and costing from materials mngt
system.
 Should automatically pick up sales details from points-of-sale system,
daily meal order.
 Beverage control and electronic bar, bar control system.
 Personal management system

The most important asset in the hotel is its people. The personal mngt
system should integrate the requirements for effective career planning,
personal administration and pay roll.
 Comprehensive data aids personnel career planning & man power
development.
 Extensive reporting capabilities on employment profiles.
 Should aid help aids personnel administration.
 Comprehensive payroll system with automatic calculations and printed

of pay slips.
APPLICATION OF COMPUTERS IN HOTEL INDUSTRY IN INDIA
Hotel industry in India felt the need of computerization way back in 1982
when Asian Games was held with an underlying idea of providing more
personalized service to the guest. If you have to be on the top in this line
you have to offer more to your guest then others i.e. ultimate in service i.e.
personalization. Fortunately we have today a willing slave called “computer’
as a means of providing a more complete personal service, which is
prepared to wok endlessly at very little cost on the most mundane, tedious,
boring, and repetitive tasks. A computer will change the efficiency of a
procedure but will not fundamentally affect its value to the guest. Rather, it
would make it more reliable, economical and faster. As a part of effective
services, guests are pre- registered to save time, and individual attention
can be given to them. Advance information, especially about VIP’s, help in
providing exactly what they need without their asking for it. More
personalized touch can be given as the operator identifies the guest be name
and his/her room no. and their needs are attended to immediately.
Information is dispatched more effectively, interdepartmental
communication is quick and information can be transmitted from one
terminal to another terminal. Also, the guest accounting is accurate. The
guest doesn’t have to wait for the bill to be produced. Last minute meal
charges, mini bar charges or telephone call bills are updated immediately
and have no late charges. Pneumatic tube used for transmission of the
information and no more used. At any given moment the status of room can
be verified and a report can be prepared. The back office can be used for all
the accounting, cash trial balance, payroll, stock control, etc. another
important function, forecasting, leading to better planning and accurate
room availability for maximization room sales can be done.
FIDELIO HOTEL MANAGEMENT SYSTEM
Fidelio hotel management system is a completely integrated system package

designed to maximize the efficiency of the hotel. It’s a highly flexible
system. Its uniform and user friendly interface means that hotel employees
can learn this system quickly. It’s a completely integrated package designed
to manage and maximize the efficiency of hotel operations. It has a special
training module which enables the user to work and learn in a real-like
environment.
Fidelio is a highly user-friendly with pull down menus which help and assist
the user at every step and only short term training to staff is required.
Fidelio software is one of the most advanced hotel management software.
It’s a Munich based software company. Fidelio has its own special file and in
case a virus gets into it. Fidelio catches it and leads it into a non-usable file
from a data base file and locks it. Additional software called “Red Alert
Software” for extra protection is used. Total hardware i.e. net serve, vectra
nodes and printer are provided by Hewlett and Packard. Serves are Pentium
based.
Fidelio and its importance in Interdepartmental Coordination and

Communication
1. Promotes smooth functioning of all the depts. wherever it installed.

2. Reduces paperwork and helps in saving money or extra stationary.
3. Eliminates communication gap between depts. And helps in providing
quality service to the guest.
4. Helps in up keeping of the hotel’s goodwill with the guest.
The interdepartmental coordination leads to an attitudinal development in

the staff. The lax attitude is replaced with more conscious behavior as that
they are equally responsible for their own actions. It helps save time and
reduces work load and increases productivity. Accommodation operations
include two basic and important depts..:- front office and housekeeping.
Fidelio helps in interdepartmental and intradepartmental coordination,
cooperation and communication in both. Fidelio as a package is an
enhancement to interdepartmental coordination.
Advantages of Fidelio hotel management software packages
Fidelio is an eco-friendly package as it makes the paper work redundant and

eliminates filing and storage cost. Fidelio has integrated, configurable,
context sensitive help system and is in the form of pull down menus with
windows and functioning keys. It has user-definable and friendly screen with
color contributing by using a set of 12 codes to indicate the status of each

room by a 12-color code. It’s a highly flexible program unlike other software
mngt. Systems and has facilities like screen painter, report generator, user-
definable report menus and night audits, etc. it has the ability to create
extensive guest history which can record guest stay, behavior, preference,
etc. for unlimited yrs. Complete graphical plan illustrations of each floor
allow the front office staff to monitor and control the occupancy of every
room in the hotel.
Disadvantages and problems
Since it’s very expensive, an underutilization will be very expensive. Its

maintenance is also expensive as compared to other systems and if proper
locking is not done, anybody can access guest profile in front office and
hence guest information can be easily altered or erased. User ID should be
kept for all personnel handling the systems. Locator information of the guest
gets deleted automatically after a particular time.
The following functions provide assistance during operations.
1. Integrated, configurable, context sensitive help system.

2. Pull down menus.
3. Function keys with windows.
4. Customizable colors
5. User- definable screens.
Some points to prove its flexibility are:-
1. Screen painter
2. Report generator
3. User-definable report menus.
4. User- definable night audit.
5. User- definable picks boxes.
6. Multiple installation parameters.
7. Unlimited security levels.
Reservation Module
This module includes the various types of reservations. For e.g., individual,
company, group, airlines, travel agents, and also by any combination and
wait-listed reservation.
Availability displayed by room type, (this can be made on the yield

management principles also), suites availability, several fixed charges in
addition to room rate, unlimited reservation availability period.
Other aspects of reservation such as search of guest by membership code,

by corporate ID etc. Individual, mass cancellation and reason for
cancellation, modification of reservation (date of arrival and departure, room
rate, and types etc.). Multiple reservations can be done for the same guest.
Ability to print messages in multiple languages, rate projection in different
currencies showing statistics, ability to enter important events which are
shown in the availability display , create multiple traces for a guest. (A trace
is a remark about a reservation which requires action at a specified date by
the staff e.g. a specified dept. – housekeeping etc.).
Group allotment management
Creates rooms block, search view and modify a block, create a block header.
After changing the status of a block to open for pick up rooms, the rooms
can be picked up from group reservation or individually. Block can be rigid or
elastic (overbooking possible or not possible). Block any combination of
room’s type with various room codes and rates. Enter a cutoff date; create a
group master and multiple paymasters. Series group apply changes to all
group guest. One guest only or all guests (same arrival date). Pick up room
from an existing block, create a rooming list.
It also includes, creation of rooming list, fixed or flexible no. of persons
sharing a room, rate showing options, different length of stay for each
member individually, cancel and modify reservation for one or all members
of the group, perform automatic room assignment and viewing of group
statistics etc. further functions such as check-in of whole group
automatically , individually billing for all group members or consolidated
billing in master folio and group check or individual check out etc. are also
included in the module. Handles all reservation from a complex convention
to airlines allotments.
Yield Management / Integrated Rates
The concept of yield management i.e. management of the yield of revenue in

relation with the available room & what shall be there best possible rate
structure for the rate availability and charges in the strategy for selling the
room of the hotel i.e. reject low price business even if can predict that the
room can be sold to a higher paying customer is also included in Fidelio. This
module offers the following features:-
1. Changing the status of available rooms of a certain rate code or rate

category for any chosen date range including special week day. Possible
status codes are open, closed, day use, min. length of stay etc. selling
strategies and calculation of most profitable room rate.
2. Setting a strategy for a certain rate code or a whole category.
3. View available rate code with a function key.(rate availability depends
upon arrival date, no. of nights, persons and room and the rate code)
4. Negotiating strategies and selling techniques are also built in the
systems.
5. Maintains a snap shot of forecast every day of the year a can show the
“Pick up “curve per day either in no. or multicolored graphs.
6. Data created on current pattern of occupancy and reservation can be
fed to an unlimited no. of terminals as per the need.
7. For hotel higher profits are possible as rates and occupancy are
automatically uptimes to the highest level dictate by company strategy.
Packages
A package refers to a deal in which the guest is given other services also
along with room in the rate, e.g. a trekking package, a golf packages etc.
(which in addition to room includes rounds of golf). Americans breakfast,
welcome drink, etc. for may be 3 nights and 4 days. Fidelio module offers
two ways of handling packages:-
 Basic package module
 Advanced package module
Basic package module: - for basic package Fidelio module can configure:-
Print package on guest folio.Package price can added or included to the rate
Multiple posing possibilities such as every night, certain nights of the week
on first night or last night or a combination of above.
Check-in and Ongoing
This module of Fidelio covers various aspects such as user-definable screens

and fields, ability to enter, complete and modify guest data, handling of
walk-ins, individual check-in of group members and permanent folio. It also
includes query of arrivals by the same selection as in reservations and, in
addition to this, by walk-in, all arrivals already checked in and day use. The
module also covers possibility to modify all reservation data, ability to enter
fixed charges and billing instructions at check-in, credit card no. check,
automatic room assignment, display of available room type, room status and
any combination of features, reactive reservation after check-in, credit limit
etc. further the module include automatic posting of reservation deposits
into guest ledger, connection to guest history, room history view activity of a
specific room. Two there important features of this module are:-
Multiple message system in user-defined languages wherein it’s possible to
send messages to
 All guest in-house
 All arriving /departure guest
 All VIP guests
 All guests of a particular group
 Any combination of the above
Guest history
This module of Fidelio has an ability to create profiles for individuals, guests,
companies, agents and sources, assign a no. to the guest, enter special
room features for a guest, possibility to put the guest on all payment cash
basis, override the overbooking parameters for VIP, enter a special
commission for a client, agent or source, on-line company statistics displays
revenue for last three yrs. Statistics of past stays, future reservation and
turn ways, automatic transfer of reservation data into guest history, purge
guest programmer in order to remove inactive guests and statistics by
revenue, no. of nights, no. of no shows and no. of cancellations for

individual, companies, travel agents and sources.
Guest accounting
Guest accounting module has nearly 800 department codes and approx.
10,000 articles code, it has also paid out new rooms, non-revenue accounts
and payment (credit card, currencies, and bank transfer etc ) accounts,
automatic transfer of specific posting, grouped posting or all charges to
 Guest folio
 Another room
 Company/ travel agent account
The module can correct, modify or split postings, itemized, group or

complete transfers from folio to folio, city ledger account, permanent folios,
prepare folios for guests without room no., multiple posting to multiple
rooms, possibility to view posting history, posting after check out, if
required, ability to add supplement text for every posting and interface to
POS systems, telephone exchange system, video and mini bar etc.
Check out
This module covers the following functions: - user definable folio format in
various languages, ability to enter individual and additional text for each
folio, automatic printing of folio with department code text. In addition, to
ordinary and regular folio it can print advance folio, information folio and
interim folio, ability to consolidate folios, early departure with reposting of
room tax, check-out time feature allows detection of late departure , folio
spelling and re – grouping facility , possibility of enabling or disenabling
printing of phone nos. on folio, modify any previous billing instructions at
check out, ability to post additional charges, total or partial transfer of folio
to and from another room, ability to change guest data, view messages for
guest, unlimited combination of payment mode as cash, debit card and
credit card etc. and ability to previous folio on screen
Cashier function
This is an important Fidelio module and includes various cashiering functions
such as user definable cashier set up
 User identification
 Only one user per cashier at a time
And credit card and check report, city ledger report, currency report,
exchange from foreign to local currency and vice versa, daily modification of
exchange rate, possibility to enter a buy rate, sell rate, etc. for currency
automatic calculation of payment balances and cash book printout, handling
of paid outs, possibility to print out batch folios for guests departing
tomorrow, today, for all guests (batch folios can be printed while night audit
is running)
Deposit accounting
This covers accounting of reservation deposits, list of outstanding deposits,
list of transfers and refunds, deposit reminder report, automatic transfer of
deposit to guest folio at check-in and daily trial balance deposit ledger in the
night audit, master billing, split rate, staggered arrival, package plan , room
type control, block forecast and traces, etc.. All of these are taken care by
group and management functions.
City ledger/ credit card accounting
This Fidelio module covers all the features of city ledger such as automatic
transfer of city ledger bills to city ledger accounting at the check-out,
authorization of city ledger check out can be made dependent on users
special right, grouping of several folio into one, partial payment and credit
card commission and various other options to :-
 Enter payment
 Delete accounts
 Transfer charges
 Correct amount of city ledger charges and compress charges etc.
Room’s management
This Fidelio module has the ability to change room’s status through
telephone interface, displays room status at any time with function keys
floor plan option which helps in graphically designing the layout of the floor,
room, or all of the entire property. This system displays the status of each
room, and guest information through a function key. It has the ability to
check from clean, dirty, and out of order, out of service, assigned rooms,
and discrepancies by various such as
 All rooms
 All rooms of a specified section

 Vacant room
 Occupied rooms
 Arrival expected
 Departure not paid
 Departure paid and arrival etc. The module has features such as room
status report, linen management, linen change cycle for every guest,
 Various options for “quick cleaning “room, possibility to enter an
individual overbooking level for every day, week, or year, room history an
assign room etc.
Reporting system
This module covers up user- definable menus for

 Guest in-house
 Reservations
 Guest history
 Financial
 Night audit
 Statistics
 Shift report etc...
Also various other reports a statistics and comparison with last year (date,
month, and year) and budget.
Programmed reports
Fidelio system covers the following programmed reports : arrival report,
arrival report with remarks from guest history and reservation, vacant rooms
with selection criteria on clean, dirty or all rooms, forecast of occupancy for
a given time period, type and booking type, package forecast report, market
forecast with exact overview of rooms sold at which rate for the upcoming
month, market segment forecast by day, departures of all regular guests
and groups, week plan displays, print out of room plan for 15 days of
entered date. Company statistics for sources, agents and companies with the
possibility to select by name, master account , country code etc. the module
covers nationality statistics with number of guest per country per day a well
as per month, outstanding debts report and commission report etc. and
many others useful reports.
Night audit
Its user definable night audit, handling of no shows, balance control and
audit trial report for back office, automatic posting of all fixed charges and
room rates, country code, control for currency code statistics, transaction log
for all activities, posting of telephone charges by telephone interface, rooms
and room type statistics, market code statistics, allotment control, night
auditor’s comment for cover page. A very special is that during night audit,
queries and reporting are possible on other work stations.
Concierge program
It includes following, query , guest history and registration data, all standard
function key available , housekeeping module with all the functions as in
front office, change of room status, lining change, lock room etc., messages,
information of the day: arrival , departures, stopovers, posting, wake calls,
print call details and most importantly , lock / unlock telephone.
Special accounts receivable programmers
Its built in the share files accounts and user interface, control of direct billing
at reservation or check-in, creation of accounts receivable accounts, in front
office or A/R module (Accounts Receivable module), unlimited no of
accounts types, reminder cycles based on account type , ageing reports,
reminder letters in different languages, ability to view and modify original
front office folio from within A/R module, searches can be by account name
or alphanumeric automatic reminder printing program ; reminder letter
history features shows exactly what letters were sent and when; ability to
search for changes by name, account no, date, amount range, payment no
or front office folio no, prevention of check out unless guest is attached to a
valid A/R account, security and user setup from front office, integrated credit
card facility for hotels not using electronic draft capture, similar functions
keys as in front office, no separate A/R night audit required and ability to
use same cashier no as in front office revenue etc.
Interfaces
The Fidelio system has the capability of interfacing with the following:
1. Point of sale
2. CRS
3. Lock software
4. Credit card interface
5. Energy management
6. Call accounting systems
IDS FORTUNE ENTERPRISES
IDS covers 11 main modules, each of the modules has sub modules:
1. Front office management

2. Point of sale
3. Accounts Receivables
4. Sales and marketing
5. Banquets and conferencing
6. Telephone management system
7. Financial management system
8. Materials management systems
9. Food and beverages costing
10. Human resources and payroll
11. Engineering and maintenance management
Role of information and technology in hotels

Time is a very crucial resource and asset of this millennium. It’s more
precious than money. Hence it will be to the advantage of hotel industry to
find a way to couple time with technology and make max utilization of it.
Hence the punch line is “Make rapid change your best friend”
Internet
It’s one of the most modern and upcoming technology of the day. Following
are its features and benefits.
1. Opening international market
2. Making business information available
3. Selling product and services
4. Business round the clock
5. Quick information updates
6. Receiving feedback
7. Public relations and enhancing customer services.
Internet in the hotel guest room

This technology allows hotel guests to fully access the internet on their in-
room televisions. An innovative Infra-Red wireless key board is used for this.
A web-browser, E mail connection, premier service center and on line
multilingual help are all provided to maximize the internet experience whilst
staying at the hotel.
TV interactivity
Through this concept, various guests can have access to same movie at
different times according to their own convenience. The movie will start from
the beginning for each guest regardless of the time switch on their TV sets.
Another major use is that the guest can at any time refer to their TV sets for
looking at their bills, charges, credit limits and amount spent etc.
Electronic concierge
The E-concierge redefines the concept of the concierge. Like an ever present
personal assistant, this facility empowers the guest to take a “Multimedia
graphic and sound assisted tour “ of the hotel, the city, shopping complex,
etc.. all at the convenience of sitting in his room. This facility is further going
to include, making reservation at restaurant, buying of cinema tickets etc...
New technologies
 Voice over internet

 Video conferencing
 Internet TVs
GLOBAL DISTRIBUTION SYSTEMS
Objectives
 Provide distribution channels

 Give customers the ability to search easily
 Quickly search the products and services they are willing to purchase
 Full disclosure of rates and availability.

 Must provide means to conduct the transaction on the spot
 Immediate confirmation that the transaction has been successfully
completed
 To distribute company’s products(hotel room inventory or meeting
space)to as broad an audience as possible
 Most effective and in the cost efficient means so that they can be
purchased
Role of GDS
 Transaction processing
 Maintaining ,controlling and reporting room inventory levels and hotel
rates
 Yield management
-setting rates
-allocating rooms
-communicate this information to all points of distribution
 Data repository and a learning system for guest history, preferences,
profiles and buying patterns
 Primary collection points of valuable guest related information and
preferences
 Helps in developing, positioning and marketing all products and
services
GDS or Global Distribution system is a multiple computerized system

which is used to provide information and conduct transactions related to
all aspects of travel from car rentals to airlines and hotels.
GDS is basically used by the corporate sector and the travel agents to
allow them to plan all aspects of trips all at one place without any
difficulty. GDS also provides a large variety of options and alternate travel
solutions.
Communication vehicle
Provides vital information regarding inventory availability, rates, hotel

information as well as guest profile to various points of distribution and
service delivery
Source of revenue
 Room and meeting space sale generated revenue maximization

through yield management
 Fees charged for participation and for transactions processed
Strategic Weapon
 Important role in positioning ,provides access to markets ,allows a

company to implement unique functionality and selling strategies
builds strategic alliance
 Attract franchisees and management contracts
 Providing access to more markets
 Creating new sources of revenue
 Enhancing guest service
 Changing overall economics of booking process
Computer reservations system (CRS) is a computerized system used to

store and retrieve information and conduct transactions related to
travel. Originally designed and operated by airlines, they were later
extended to travel agents as a sales channel; major CRS operations that
book and sell tickets for multiple airlines are known as Global Distribution
Systems (GDS). Airlines have divested most of their direct holdings to
dedicated Global Distribution System companies, and many systems are
now accessible to consumers through Internet gateways for hotels,
rental cars, and other services as well as airline tickets.
The travel marketplace is a global arena where millions of buyers (travel

agents and the public) and sellers (hotels, airlines, car rental companies,
etc.) work together to exchange travel services. Among the “shelves” on
which buyers search for travel services are world’s global distribution
systems and the Internet distribution systems. These systems have become
electronic supermarkets linking buyers to sellers and allowing reservations to
be made quickly and easily. Nowadays, more travel is sold over the Internet
than any other consumer product. The Internet is a perfect medium for
selling travel as it brings a vast network of suppliers and a widely dispersed
customer pool together into a centralized market place
HISTORY OF GDS
In 1940 airline routes and fares were limited and information of these were
published in a volume entitled the Official Airline Guide, from which travel
agents or consumers could construct an itinerary, then call or telex airline
agents who would mark the reservation on a card and file it. As the demand
for and complexity of air travel expanded, however, this process soon
became onerous and costly.
In 1940 airline routes and fares were limited and information of these were
published in a volume entitled the Official Airline Guide, from which travel
agents or consumers could construct an itinerary, then call or telex airline
agents who would mark the reservation on a card and file it. As the demand
for and complexity of air travel expanded, however, this process soon
became onerous and costly.
Ferranti Canada became involved in the project and suggested a new system
using punch cards and a transistorized computer in place of the unreliable
tube-based Mark I. The resulting system, ReserVec started operation in
1962, and took over all booking operations in January 1963. Terminals were
placed in all ticketing offices, where queries and bookings took about one
second to complete with no remote operators needed.
European airlines also began to invest in the field in the 1980s, propelled by
growth in demand for travel as well as technological advances which allowed
the GDS to offer ever-increasing services and searching power. In 1987, a
consortium led by Air France and West Germany's Lufthansa developed
Amadeus, modeled on Eastern's System One.
In 1990, Delta, Northwest Airlines, and Trans World Airlines formed World
span, and in 1993, another consortium including British Airways, KLM, and
United Airlines among others formed competing company, Galileo
International, based on United's Apollo network. Numerous smaller
companies have also been formed, aimed at geographic, industry, or
language niches inadequately served by the "big four."
However, any discussion of the Internet as a distribution channel for travel

needs to start with an understanding of the existing electronic distribution
infrastructure, the Global Distribution System (GDS). The airline industry
created the first GDS in the 1960s as a way to keep track of flight schedules,
availability, and prices. Although accused of being “dinosaurs” due to their
use of legacy system technology, the GDSs were actually among the first e-
commerce companies in the world facilitating B-2-B electronic commerce as
early as the mid 1970s, when SABRE (owned by American Airline) and
Apollo (United) began installing their propriety internal
Reservations systems are used in travel agencies. Prior to this, travel agents
spent an inordinate amount of time manually entering reservations. The
airlines realized that by automating the reservation process for travel
agents, they could make the travel agents more productive and essentially
turn into an extension of the airline’s sales force. It is these original, legacy
GDSs that today provide the backbone to the Internet travel distribution
system.
IMPORTANCE OF GDS TO HOTELS
Important role in positioning, provides access to markets, allows a company

to implement unique functionality and selling strategies builds strategic
alliance
• Attract franchisees and management contracts

• Providing access to more markets
• Creating new sources of revenue
• Enhancing guest service
• Helps Hotels get publicity as it is used by a large amount of corporate
and travel agents.
• Helps the hotel get reservations through the system of GDS
• Helps hotels change their rates on the system as and when required
• The PMS is directly connected to the GDS.
Information Provided by GDS about hotels
LOCATION: City where property is located.

TRANSPORTATION: Method of transportation from primary airport.
POLICY: Guidelines that apply to children, pets, check-in/check-out,
maximum guests per room, etc.
FACILITIES: Physical features, number of rooms, pools, restaurants,
number of floors, etc.
SERVICES: Hours and services such as valet, room service, baby-sitting,
etc. Usually at additional charge.
OTHER: Nearby activities and miscellaneous information
• More than 69,000 hotel properties around the world use GDS
• A system entry allow hotel suppliers to view statistics for competing
hotel companies as well as their own
• GDS is responsible for the recent growth and exposure of the Hotel
and Tourism industry
• GDS is used by almost all corporate and travel agencies and has
changed the way people look at traveling
There are currently four major GDS systems:
1. Amadeus
2. Galileo
3. Sabre
4. Worldspan
In addition, there are several smaller or regional GDSs, including SITA’s

Sahara, Infini (Japan), Axess (Japan), Tapas (Korea), Fantasia (South
Pacific), and Abacus (Asia/Pacific) that serve interests or specific regions or
countries.
Amadeus
Founded in 1987 by Air France, Iberia, Lufthansa, and SAS, Amadeus is the
youngest of the four GDS companies. Amadeus is a leading global
distribution system and technology provider serving the marketing, sales,
and distribution needs of the world’s travel and tourism industries. Its
comprehensive data network and database, among the largest of their kind
in Europe, serve more than 57,000 travel agency locations and more than
10,500 airline sales offices in some 200 markets worldwide. The system can
also provide access to approximately 58,000 hotels and 50 car rental
companies serving some 24,000 locations, as well as other provider groups,
including ferry, rail, and cruise, insurance, and tour operators.
Upon its inception, Air France, Iberia, Lufthansa and SAS held equal shares
of Amadeus Global Travel Distribution S.A. Shortly after the formation of
the company, however, SAS sold its shares to Amadeus Data Processing.
As the youngest of the four GDS companies, Amadeus has done remarkably
well during its short tenure. Yet, in many ways, the company remains an
anomaly. Amadeus has the greatest number of travel agency locations with
the highest productivity per terminal in the world, yet its booking share is
Number 3, and its revenues are dwarfed by Sabre and, to a lesser degree,
by Galileo. While the company is Number 1 in locations worldwide, serving
the greatest number of countries, it provides the fewest U.S. destinations of
the top four GDSs. As with its competitors, the future for Amadeus will
continue to be linked to the technological and structural changes that are
revolutionizing the travel industry. Amadeus appears to be adapting well
(albeit cautiously) to the shift of business to the Internet. Having acquired e-
Travel, Inc. from Oracle Corporation in July of 2001, Amadeus now has a
new business unit dedicated to delivering solutions to e-commerce players
worldwide. The e-Travel solutions integrate all components of a managed
travel program into a single Internet-based service that enables travelers to
book air, car, hotel, and rail services, all within corporate guidelines. With its
strong company infrastructure worldwide, impressive product set, and

growing customer base, Amadeus is one of the most significant players in
shaping the future of the GDS.
Amadeus Hotel Revenue Management System
Amadeus Hotel Revenue Management System is a powerful decision support

solution with extensive reporting capabilities. It is also a robust
forecasting engine and cluster optimization tool that can help you quote
optimal rates and increase revenue by at least four to eight percent.
Best-in-class reporting
Achieve greater understanding of your business with over 250 distinct and
customizable reports:
 Benefit from detailed performance analysis of individuals, groups and

allocations from booking to checkout.
 Make better sales and marketing decisions with reports that offer data
by segment, rate code, and channel, country of origin, room class,
yield class and travel agency.
 Track revenues for room, food and beverage, and other revenue
departments.
 Follow pickup and materialization trends, on-the-books business and
length-of-stay patterns.
 Reduce manual reporting with direct data export to any Windows
application.
 Manage multiple properties more effectively through the consolidation
of data.
Enhanced forecasting
Stay one step ahead of demand with a market-leading forecast engine:
 Maximize your revenue contribution and minimize opportunity losses

from discounted business with our advanced forecasting methodology.
 Benefit from a self-learning forecast model that perfects the art of
prediction.
 Make sound decisions based on unconstrained demand, not on
availability.
 Take advantage of custom-built models based on your customers’
unique behavior.
 Get an accurate picture of future demand. It is re-forecasted daily for

a minimum of 365 days.
 Improve short- and long-term planning with a comprehensive
budgeting module.
Cutting-edge optimization
Capitalize on your hotel rooms’ true worth with dynamic daily

recommendations:
 Harness the power of superior optimization allowing Revenue

Managers to determine daily rules that guarantee the highest possible
contribution.
 Have better control of your business using a dynamic tool (that learns
as it goes) to make daily adjustments in rate recommendations
according to demand fluctuation.
 Identify critical days that require extra attention through an alerter
dashboard that permits you to make timely decisions to maximize
revenue and profits.
Ground-breaking deal quotation
Maximize total revenue and capacity through optimal group, series and
contract placement:
 Quote an optimal rate and room category for a specific group, to

maximize profits.
 Obtain a highly accurate displacement analysis, including an
assessment of additional revenues (such as food and beverage, or
banqueting), while factoring room cost and commissions.
Recommend the most profitable alternative dates for each group and build
the right mix of business on any given day.

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FRONT OFFICE MANAGEMENT – V SEMESTER

PLANNING AND EVALUATION OF FRONTOFFICE OPERATIONS

The management process

Initial activities Pre-operating activities Operating activities Appraisal

 Helps management to clarify, focus, and research their hotel’s

Planning teams have to determine which concepts produced in a

LONG RANGE PLAN

MARKETING PLAN PREPARING BUDGET

Defines the fundamental purpose of an organization or an enterprise,

Mission of the Front office Department

 To establish and maintain the standards of quality within the department

 To provide each arriving and departing guest the opportunity to obtain

Long range plan

An example of a long range plan of a business hotel may be: To obtain 60 %

 Processing reservations done directly without the help of middlemen

 One to one revenue management to be followed, meaning each

from demographics, to determine the rate and what availability to

It is the most important of all managerial functions. Without planning,

1st Step – Define department’s goals

Near Term Long Term

E.g. raise occupancy % E.g. Improve Guest Satisfaction scores

2nd Step – Set specific measurable objectives.

3rd Step – Determine strategies to attain these objectives.

 Delegate work fairly among staff.

 Bringing together resources and use them to attain planned goals.

 Recruiting & staffing those best qualified for various positions.

 Involves overseeing, motivating, disciplining and setting an example.

 Means a system of internal controls to protect the assets of the hotel.

 Determines the extent to which planned goals are attained.

3 important Planning functions:

1. Establishing room rates

Establishing Room Rates

 FO employees are expected to sell rooms at rack rate unless he

1. Corporate / Commercial rates: The rates offered to companies that

Pricing Objectives can be divided into 3 categories. The first is Profit

profits are expressed as a percentage returns on investments or sales. The

The second category is of Sales Oriented Pricing Objectives focusing on sales

Unsophisticated approaches are made on not so much on research or costs

 Are the rates higher or lower than competing hotels?

Problems with this approach

The Market Condition Approach is really a marketing approach which allows

The Follow-the-Leader Approach: This is very similar to the competitors’

The Intuitive Approach: This is based on the entrepreneur’s intuition.

The Rule-of-Thumb or Traditional Approach: there are two well-known

Target Pricing: the price is usually set in terms of a specific return on

Price discounting and price discrimination: where discounting means

pricing means selling prices to some customer groups at higher or lower

Cost – plus pricing: where in amount of profit percentage is added to the

Psychological pricing: where slightly lower prices are used to give

In the Multistage approach, pricing should consider nine factors.

Break-even analysis is a technique widely used by production management

The Break-Even Chart

In its simplest form, the break-even chart is a graphical representation of

In the diagram above, the line OA represents the variation of income at

Examples of fixed costs:

Indirect variable costs cannot be directly attributable to production but they

Break-Even Analysis: (For Hotels)

It is important to realize that a company will not necessarily produce a

Contribution margin is the calculation that gives the profitability of an

Contribution Margin =Revenue-Variable cost

Revenue reflects income from the specific product line.

Contribution margin helps gauge the success or failure of company's product

Weighted Average Contribution Margin Ratio