llNITJ

6
-B_UDGET

INTRODUCTION
Definition: As pe r the R
bu d t ,, . ., . .
ge me an s an an nead1ers Digest Great Encyclopaedic Dictionary, the
ua estim . ter m
ate of rev en ue an d ex pe nd · ·
pr es en ted by the Chancello
r of Exchequer in the Ho us e of itu re, wh1ch 1s ·
Bu d t · Co mm on s in En gla nd .
. ge is pre sen ted by the Fin
th ance Minister in Lok Sabha
. e Fm an ce M ini str y H ea d • th in Ind ia an d by
m o er countries. Budget is • o f bli
m co ~e a nd e7, pe nd itu re the rev iew pu c
ser vic es. an d the pro po sal s for rai sin g rev en
ue for pu bli c
·
Ac"cording to Te rry , "B ud
ge t is an est im ate of fu tur
ac co r~ g to an ord erl y ba e ne ed s arr an ge d .
sis covering some or all the
fo r a de fin ite pe rio d of tim a~tivities of an en ter pri se
e." According to the Institu
Ac co un tan ts, Lo nd on , a bu te of Co st an d W or ks
dg et is a "financial an d/ or
pr ep ar ed an d ap pr ov ed pri quantitative sta tem en t
or ,to a defined pe rio d of tim
pu rsu ed du rin g tha t pe rio e, of the policy to be
d, for the pu rpo se of attaining
a giv en objective."
Bu dg et is an es tim ate of
go ve rnm en t rev en ue an d
fo rth co mi ng fiscal ye ar. Bu ex pe nd itu re for a
dget is a-statement of an tid
in nu me ric al ter ms . It acts pa ted res ult s ex pre sse d
a~ a basis for continuous co
mp ari so n of ac tua l wi th
fo rec as ted figures.
Fu rth er, bu dg et is a pla n to
be.followed of ho w mo ne y
· d o f tim 'e in rel ati on to the wi ll be sp en t ov er a _
pe r10 money_._available an d for the
de ter mi ne d goals. W ith ref pu rp os e of att ain ing
erence to Hotels, an an nu al .
. op era tio n bu dg et is a
pr of it p 1an w hich ad dre sse s all revenue sources an d ex pe
ns es ite ms .
an iza tio n on e of the most im
In ev ery or g po rta nt asp ec ts of ma na ge
1 tec 'iqu .y be· d' ·d d . tw me nt is
hn
co ntr ol. Th e co ntr
. ° es ma 1v1 e m o categ on.es: (1) T d' .
·
tro l tec hn iqu es such as bre ak -ev en analysis, sta nd ar d costi· ng, rat e
ra 1tiona1
co n . rt pe rso na l observations, sta · · analysis,
· t al au di t rep o s, tis tic al da ta an d
m em ' bu dg ets , etc.,
(2) M O de rn co ntro1 tec hn iqu es sucb, as PERT (P ro gr am me Ev alu
an d ati on
• ue ) CP M (Critical
Pa th Method), Tr. me Ne tw or
Re vie w _Techniq arcll) an d logistics, etc. Al tho ug h
all the
k Analysis, OR
se me tho ds are us ed ,
(O pe rat ion s Rese .
·n ne of -th e mo st im po rta nt
bu dg et in g st1 r em am s 0 tec hn iqu es of co ntr ol.
:jlttcti
onal Material ·-
 ~eca use of high unit costs of produ cts, and also high
labou r cost in the hotel
-~ dust ry as well as for other items of suppl ies, expen
ses and servi ces invol ved
m each depa rtme nt of the hotel , it is impo rtant
that mana geme nt of each
depa rtm~ t of the hotel budg ets its opera tions to a desir
able or, at least, neces sary
goals . This beco mes the respo nsibi lity of each Head of
the Depa rtme nt/M anag er
of the depa rtme nt of the hotel to prepa re its perio dical
/ annu al/ tradi ng perio d
budg et. Thes e depa rtme nt budg ets, in tum, help the
GM/ MD or whoe ver is
respo nsibl e for plann ing, to prepa re a perio dical /annu
al/tra ding perio d budg et
of the hotel in totali ty. Budg eting is a plann ing proce
ss. Henc e, it may be said
that whe n one budg
ets, he is plann ing futur e opera tions in respe ct of a defin
ite
perio d of time. It is one of the most impo rtant long
term plann ing funct ions of
man agem ent.
The hote l indu stry, howe ver, is so differ ent from other
indus tries that here
the man agem ent cann ot affor d to have only an annu
al budg et, but here annu al
budg ets are usua lly divid ed into mont hly plans ,
whic h in turn, are divid ed
into week ly plan s. Some hotel s go to the exten t of daily
plans for more effec tive
u~a tion and resul t orien tation of resou rces. Budg
ets set benc hmar ks for
eval uatio ns.
Whe n asses sing resul ts, usual ly hotel s use two meth
ods. One is that they
com pare the curre nt year' s achie veme nts with the
previ ous year' s resul ts and
the seco nd is that they prepa re a proje cted budg et after
the futur e perio d and at
the end of that speci fic perio d they comp are the
achie veme nts with the
prev ious ly proje cted figur e. Both the meth ods are
mean t to asses s the resul ts
and are mean t for contr ol. Use of budg et for contr
olling activ ities is know n as
Budg etary Cont rol Meth od.
If we stud y the first meth od, we will realiz e that in
the first case wher e we
are com parin g the resul ts with the previ ous year'
s, then the prob lem may be
that the prev ious year' s tradi ng resul ts may have
been excep tiona lly good or
bad for a varie ty of reaso ns, and in them selve s, are
not neces sarily indic ative of
wha t resul ts shou ld be expe cted in any subse quen
t perio d. Thus , the degre e of
com petit ion may chan ge from one year to anoth er
year, local cond ition s may
chan ge, the gene ral econ omic situa tion may chan
ge from one year to anoth er
year , the fisca l polic y of the gove rnm~ nt may affec
t the amou nt of spen ding
pow er avail able fo! hotel accom moda tion and also
for food and beve rages, etc.
It is for these reaso ns that past resul ts can only be a gene
ral guid e on whic h to
lan futu re oper ation s. Whil e the secon d meth od,
p . that is comp aring with a
forec asted budg et, is more realis. d
tic an more and more hotel s are using this
meth od. Also , the past tradi ng resul ts may have
been untyp ical or affec ted by
the oper ation of exter nal facto r and that is also anoth er reaso n why secon d
meth od is more usefu l.

,Ja/r1;
· ,,al JV'
Selj-JnstnictJO
 T

titat ive term s

A bud get is a st or qua n . . resp ect
reflecting th Ii atem ent expr esse d in mon etar y ns tn
ness ope ratio
. e po cy of a business and determining busi
of a part icul ar trad in .
g pen od. Mos t bud
e.g., cash bud get, sales budget, labour cost bud
gets are prep ared
.
ID mon
get, and bud gete d p~o
etar y term s,

sales to Rs. 10,0 0,00 0 tn a ye .

.
fit a:d

loss ~ccount. Sup pose a hotel decides to pus h its . . ·th rega. rd to
ObVIously this would call for formulation of suita ble policres Wl of
deci de to redu ce the pnc e .
purc hase s, prod ucti on and sales. The hotel may
, it may be dec ided to exte nd
goo ~, or offer othe r incentives to the guests. Also
ng adv ertis ing effo rts and on
or w1. ~dra w the credit sales policy, and increasi
sions nee d to be giv_en con cret e
recr wtin g ~~ditional staff, etc. All such policy deci
gets. For exam ple, tn the s:11es
shap e. This 15 don e in the form of various bud
l hav e to be brok en dow n tnto
bud get of a hotel, this figure of Rs. 10,00,000 shal
& etc.) and per pro duc t etc.
sale s per mon th, per depa rtme nt (rooms, and F 8
achi eve this sale s figu re wha t
Sim ilarl y, the purc hase bud get shall tell that to th
labo ur bud get wou ld tell e
qua ntit y of mat eria l wou ld be purc hase d, the
and the cost incu rred on them
num ber of skilled and unskilled wor kers need ed
wou ld tell wha t qua ntit y of
and the prod ucti on and man ufac turin g bud get
ever y mon th, qua rter or yea r·
diff eren t prod ucts wou ld have to be prod uced
inis trative cost s and the plan s
Sim ilarl y, adm inis trati ve bud get deals with adm
artm ent for a spec ific per iod ,
and resp onsi bilit ies of each administrative dep
pay men ts anti cipa ted dur ing
and the fina ncia l bud get deals with receipts and
get may be prep ared in resp ect
the bud get peri qd on various aspects. Hence a bud
acco mpl ishi ng the Sale s Tar get.
of each acti vity that need s to be und erta ken for
term s othe r than mon ey. For
How eve r, som e bud gets may be expr esse d in
proj ect the num ber of emp loye es
exam ple, a Fron t Office Personnel Bud get shall
ilarly, a· sale s bud get of Fro nt .
to be eng age d for a specific futu re peri od. Sim
s valu e and fore cast ed num ber
Offi ce dep artm ent will show the projected sale
resp onsi ble to esti mat e rela ted
of room s sale s and the Fron t Office man ager is
oun ting Div isio n Man age r sha ll
exp ense s and room reve nue forecasts. The Acc
vari ous dep artm enta l man age rs
pro vide the esse ntia l statistical info rma tion to
and then shal l coo rdin ate all the
for prep arin g indi vidu al dep artm ent bud get
soli date d Hot el Bud get. Fin ally ,
indi vidu al dep artm ent bud gets to mak e a con
~an age r and Con trol ler for
this bud get shal l be revi ewe d by the Gen eral
for imp lem enta tion. Fro nt Off ice
app rov al and sent back to each department_
oom Rev enue forecast figu res from Res erva tion Ma nage r
hall get R _
man age r s ent, etc.
figu re from Hou seke eper and Mai nten ance dep artm
and exp ense s .
. . the mak ing of the bud get sho uld be recogru·tion of th e pnm .e
The first step m .
on the requ ired inv estm ent of
pur pos e of bus ines s itse lf-a n earn mgs retu rn rt Th b
. d prof it retu rn for succ essf ul. man age men t effo · e udg et
cap ital fund s, an a
uire s the clos ely coo rdin ated effo rt of all m
ana gem ent
plan ning proc ess req ose of the bud get is th f
otel . The basi s or end purph , er e ore
pers onn el o f th e h . men t of th '
oun t repr esen ting t e acc omp lish
e se two
~ ~l!QJ • real izat ion of the am
Material
 -
purposes. For ex --
ample, let us su of a S-star delu
an investment ·• pp th
ose at ·on. a roorn xe hotel,
.
of Rs. 50,00,000 s and equiprne t h as b ee n
on funU e, ·tu r fixt ure n
m ad e of capi
tal fu. nds ." Let h th at a m in im
representing a us fu rt er a . . ss ur ne u m am o u n t
satis factory re thi capi tr ne nt, together W .th
rrur. um
.
um satisfactory am turn on . ~ . ta.l mves0;.. of th l a
ou nt of _opera tin g pr of it 10 e in v es tm t .
Rs. 5,00,000 (thi @ 0 en , 15
s figure is befo
re ta xe . orne)". Fur th le t u s give a p • d
f
o 12½ years fo , s on me er , en o
r the use o f th
es -' -· -; tu re fi.xt · • d eq u ip m en
t b ef o re it
n ee d s replacem e 1u .u u '
ures an
ent and let us de . • alue is Rs. 4,00
annually. sa y t h at th e pr ec ia ti on v ,000
..
Furth
b u il d ' er, oc cupancy costs, ·
1.e., m aintenance taxes and insurance for an.: o w d
m g an d,also re '. ne
·
·th e ac nt payable (if th build. g 18 o n le . Rs 00 000.
H
commodation e m as e) 1s · , , 6 en ce ,
operation mus d . f R s 15
th e year, in or t p to
ro uce a tal p ro fi t o 00 00
der to cover re · , ' 0 for
re tu rn o n ecip nt re co ve ry of prmcip
• • a1· (d ep re ciation), a m o d
ital funds inve . . er at e
as sh o w n belo st ed an d a rrurum fit for m an ag em ff
w: um p ro en t e o rt ,
Basis o f budge
t·
In v es tm en t ( ~
tu r e , fixture
B u d g et Profit an d equipmen
at 10% of Inve t, etc.) Rs. 50,00 ,000
D ep re ci at io n st m en t (b e! ?r e taxes)
(computed a ta
12 Rs. 5,00,000
fur!riture an d ½ ye ar life of fixture,
eq u ip m en t, et
c.)
O cc u p an cy co
sts (rent, p ro p Rs. 4,00,000
er ty taxes, fire
q.epreciation in su ra n ce , et c.
an d re tu rn o n sa y ) Rs. 6,00
in v es tm en t (i.e
., R O .I .) ,000
. K IN D S OF Rs. 15,00,000
BUDGET
Budgets are _of v
arious types and
prepared, these m based-on the pu
ay be classified as rpose for which
follows: they are
(a) Production B
udget
(b) Product Co
st Budget
(c) Purchase Bu
dget
(d) Production
Overhead Budget
. (e) Capital Exp
enditure Budget
(f) Cash/Reven
ue Budget
(g) Sales Budget

(h) Selling and D

istribution Cost B
udget
(i) Labour Budg
et
(j) Labour Related
and Labour Taxes
_(k) Material Bu Budget
dget
 #1'1'p.GEMENT-II

/'cf, Production B
ll1fll Udget
1/ Based on sales, tak .
Once the sales buden mto · tained ·
. account the stock levels desired to l:?e roam
get 1s fin · tity of
goods to be produ d alized, it i,s possible to determine the quan
may be defined ce to ~eet the sales forecast. In this sense, production budget
. as an esfun t d . that
penod. Factors such ass a e of quantity of _g oods to be produced urmg .
etc., must be carefull ales forecast, budgeted stock requirement, plan' capacity'
Y considered.
Production Cost BUdget .
It details the estim t
production b d a ed cost of carrying out production plans as per the
material 1 b u get. It breaks up the cost of each product into 3 main elements:
. bl ' a our and overhead (overhead may be further subdivided into fixed,
vana e and semi-variable). .

Purchase Budget
\1
Purchase budget shows th e purchases to be made during the budget · peno· d · In
some cases' a purchase b u d get may deal with the purchase o f raw· matena · 1 \1\

~nl!,while in other cases it may incorporate the purchase of all direct and
I
mdirect material as also fixed assets and services like electricity, gas, etc.

Produc!ion Overhead Budget

It contains the forecast of all production overheads to b.e incurred during the
. budget period. It deals with production overheads in three parts, fixed, variable
ilfld semi-variable.
•
Capital Expenditur~ Budget
It points to the plans concerning addition, improvement and replacement of all
fixed assets during the budget period. But the time frame of this budget may
not be restricted to just on year as in the case of other budgets..This is because
plants, additions, acquisition of land building, copyrights or patents have to be
planned years in advance and also it_requir~s considera~le time to carry them
out. It serves as a device for controlling capital expenditure as also for laying
down priorities in expendi ture.

Cash Budget
. th sh requirements of business during the period. Gives estimated
Points to e ca . . .
. d estimated cash disbursements durmg the budget period and
cash receipts an .tion arising from 1t. ·
· Cash b u d get serves as an effective devic
shows the cash posi . . . th • . e
. d coordinating activities at mvo1ve receipt or payment of
for controllingoseanis to ensure that th e concern nev~r fee1s any shortage of cash.
cash. Its purp f cash is apprehended, sU1table steps may be take t
shortage o . n o
In case any rves On the other hand, if there is expected to be surpl
t the cash rese · us,
augmen be made to make suitable investments or loans.
arrangements may
~11~ct·
zon l Material
a
 Se ve ra l ki nd s of bu dg . u on th e cr ite rio
et m ay be classifie d de pend ing p n
ch os en . W e m us t disti Let us sa y, for ex am p1 w e
nguish be tw ee n th em cle 1 e, .
sh ou ld di sti ng ws ar Y· er at in g Bu dg et
· h be tw ee n the Capital s. Ca pi ta l
bu dg et s de al w ith the Budgets an d ~ an
d
assets an d capital fun Of bu sin es s d th e bu dg et fo r
Plant, m ac hi.ne ry eq wp . s . fu rn itu re an d ra ck s etc., .
. , m en t (computer u= ;.-.ctallation,
m ca se of Fr on t Office f
department) an d also h an d stocks ar e' th er e or e.
cas
C ap it al B ud ge t
O n th e ot he r ha nd , op
er at in g bu dg et s are thos th t are co nc em e d W l"th in co m e
an d ex pe nd itu re . For e a f nu e ge ne ra tio n
example, the bu dg et /
fro m ro om s, th e ex pe ta rg et se t or r~ve da ily
nd itu re bu dg et for pr ep op er at io n
an d co st in vo lv ed in ar in g of ro om s or
th e Front Office staff an alsO th 0 ffice ex pe n tu re et c di
ca n be classified un de d e .,
r operating Fr on t Offic
e bu dg et s.
W he n w e co ns id er th ·
e scope of th e bu dg et w e d is • tin gu is h be tw ee n th
M as te r /M ai n Bu dg et e
of the Hotel an d the de
Fr on t Office bu dg et ). pa rtm en t bu dg et (fo r
A m as te r bu dg et of th e~ am pl e,
(fr om al l th e sources) e Ho te l w ou ld in cl ud
an d all expenses (o n all e all in co m es
or al l th e as se ts an d.lia the de pa rtm en ts, etc.)
bilities of hotel. The fo ~f th e ho te l
bu dg et ed Pr of it an d Lo rmer w ou ld be de sc nb
ss account an d th e latter ed as th e
Th e de pa rtm en t or fu as th e bu dg et ed ba la nc
nctional bu dg et of a ho e sh ee t.
sin gl e de pa rtm en t of te l is on e w hi ch is in
th e hotel, sa y Fr on t Of re sp ec t of a
be en sa id he re , th er e wi fice de pa rtm en t. Fu rth
ll be a Master Bu dg et er , as ha s
al l de pa rtm en t bu dg et of th e Ho te l w hi ch w ill
s in to a single in te gr at ed in co rp or at e
as a su m m ar is ed ve rs bu dg et . He nc e, it m ay
io n of the pl an s pr op be de fin ed
ov er a de fin ite pe rio d os ed to be un de rta ke
of time. Th us a m as te r n by a H ot el
sa le s, pr od uc tio n cost, bu dg et pr ov id es de ta
ca sh position, etc., fix ils re ga rd in g
w ho le ho te l as w el l ed assets, de bt or s an d
as in di vi du al de pa rtm st oc k of th e
va ri ou s fu nc tio ns en ts. It al so pr ov id es
th ro ug h ac co un tin g an al ys is of
M an ag em en t, it se rv es ra tio s . O nc e ap pr ov
as a be ac on light, th e ta ed by th e
rg et for all ac tiv iti es of
~o th er im po rt ~t di th e H ot el .
sti nc tio n is difference
St at ic Bu dg et an d Flex be tw ee n th e Fi xe d Bu
ible Budget. W he th er dg et or
on th e effect of th e lev a bu dg et is fix ed or fle
el of tu rn ov er on th e xi bl e de pe nd s
is in de pe nd en t of le bu dg et co nc er ne d W
ve h b d
· · · b d t l of tu•rn ov er , fo r ex am pl e, ad ve rti si n. b en a u ge t
ad m in ist ra tiv e u ge or m ai nt en an d .
bu dg et. It is fixed bu ce of ro om s bu dg et s g u ge t, of fic
dg et be ca us e sh or t ru th en it is ca lle d fix ede
ha ve no ef fe ct on th n ch an ge s in th
e bu dg et co nc er ne d.
poss1"b le lev els o f tu rn Fu rth er a bu de vot1um e of tu rn ov er
ov er an d pr e d et er nu.ne hi .
is kn ow n as flexible s co sts or ge
h fl w ch pr ov id es
bu dg et . Fo r ex am pl e ca s ow s ac e d " 1
de pa rtm en t th en th e w he n w e t 1k b
la bo ur co st bu dg e; i or m g Y,
pe rs on ne l of a Re so rt e th e b ad a ou t th
Ho te l w hi ch pr ov id'es· ·, u ge t fo r th e ffr on t of fic e
de pe nd in g on th e ch fo r di ff e ro nt offic •
an ge of ra te of ro om er en t 1ev el s of e
m ay us e bo th fixed an oc cu pa nc is fl . la b
d flexible bu dg et s si m ou r co sts
ul ta ne ou :l . F ex.ible
bu dg et . H ot el s
y or ex amp le , a se as
on al

. !!Ill Ml
Selj- Jns tru ct10
 H ot el rn ay h -
of fi ce expen~~ e a fix
av
ed bu dg et f ·
fr on t of fi ce P4= s, bu t
:tn or the ll\ .
er so nn .ay_have a fl am
e 1 an d cash exible b dtenance of the rooms as well as for
B u d g e ti •- u get for the cost of
sales of rooms,
- y Control 'e tc .
B ud ge ta ry co nt r l
O '
w h ich rn ea n f" ,a .
st he t
co nc er ne d f
8
ix m g re s er m su .
ggests . th
18
. ' or ex am pl e fix Po ns ib ili ty f, b e financial control through bu dg
pr om ot in g re su lts in or ud ge te d re su lts et s
'
st af f t I · an d ' . g responsibility on th to th e m an ag er s
' e c. t lS a co nt ro lmeeting the t e Fr on t Office manager for
techni_ ar ge te d/ bu dg et ed fig
of ac tu al pe rf or m .a ures of sales, cost an d
n
the re sp on si bi , ce. Hencequwehbecause it provides a standard for
• lit ie s th . ' . evaluation
it em s su ch as sa le s at w e assignent w e talk about budgetary control w e m ea
ta r · t . . 0
manag n
.
co nt ro l is pr oc es s of fingedi,nprofit maro-inc d ers, usually expressed in terms of
o~ ..., ~ cost cem· n
w it h th e
go ut gs, etc. Hence, bu d ge· ta
co rr es po nd in g bu d et w ha t is being done an d compa ry
to re m ed y di ff d . ring actual results
. g ata m order
the ca us e of . er en ce s by either adjusting th to approve accomplishments or
. . differences B d . e bu dg et estimates or
· u geting is . correcting
~ en ~ d m ~u m er ic al th e formulation of plan
terms. As such, budget s for a given future
m fi na nc ia l te rm s. s are statements of antic
A no th er ve ry im po rt ipated results
pe rp et ua l co m pa ri an t aspect of bu dg et
so n of budgeted figur ar y co nt ro l is
bu si ne ss fo r ~ t sp es to actually achiev
ecific period for whi ed figures of th e
this meai:t-5 to as ce rt ch the bu dg et w as pr
ai n the variances (di epared. Further,
ac tu al fi gu re s w hi ffe re nc e be tween the bu dg et ed
ch m ay be pl us or m an d
di ff er en ce ). W he re in us , an d also at times m ay be
th er e is a system of bu no
op ~r at in g re su lts ar dgetary control in op
e vi ew ed .frequent!!, er ation, current
ot he r pe ri od , de pe weekly, ~o nt hl y or qu
nd in g up on the profil~ ~e rl ~ or an y
· t w o~ th e po lic y of th~ busmess_(m or de
to as ce rtam O ha t extent the business 1S m accordance r
. B d t · w ith th e po lic y of th e
bu si ne ss ). u ge ar control has been defined as th "
. y e establishmen t o fb d
"bilities of the execut• th · u gets
re la ti ng to ~ e re sp
on si arison of actual ives to e reqwrement o f a pou·cy
s w ith budgeted results
an d th e co nt m uo ~
by in di vi du al ac ti
con;:: b" ctive of th at polic
y
either to secure
or pr ov id e a ba si s fo
on e O ~ Welsch r its
re vi si on . Accor di ng to Glen ·
• • 11 "B ud ge tin g refers to the entire pr
ti. ' ocess
of bu dg et , pl an ni.ng pr ep ar a on, control' reporti·ng, u till"satio · n and 1 t d
re a e
, .
at te rs B ud ge ta ry co trols m vo1v e the use of budgets an d bu dg et ar y repo
m n rts
ug
.
ho
. d to coor dinate, evaluate an d control da y to da y .
th ro ut th e pe no ,, op erations
in ac co rd an ce w it . th oals. specifi"ed in the budget.
h eg f b dgetary control is
t un p·o rt an t asPec to u the planning w hi ch go
T he m os ffe cti . en es
d ta nd it es s in th e co nt ro l of H .
_ 1, ;n of bu
ge se v otel operation.
in to th e m ~ .g
1
contr01
Objectiv e 8 . o f 9udgetarY be summarised as fo
. control may llows:
f
T he ob je ct iv es o bu dg et ar y . the aimS an d objectiv
.cal expression to es of the business.
1. To e,-
uive a practl
~1·
ioiia i Material
 . ratio n with resp ect
the Fron t offic e ope .
2. To prov ide a detailed plan of
to a part icula r tradi ng peri od. artm ents /sub- depa rtme nts
· f various dep
3. To ensu re bette r cooperation o
. h. h the man age rial
(functions of the business). t
4. To set 'ben chm arks ' (stan da rds) agai nS
w ic
f th busi ness .
perf orm ance is to be mea sure d. reso urce s o e
. O f the effic ienc y and
5. To ensu re an economical.use amm e, mea sure
6. Bud getin g serv es to clarify the prog r
prov ide definite plan s to all concerned.
Con trol )
Ess ent ials of Sou nd Bud get (Bu dge tary
' uld b e base d on the follo wing
To be effective, a budg etar y control syste m sho
guid elin es:
... d thon·ties for prep arat ion and
1. Defi ne clea rly the responsibilities an au
rolle d and who shal l
adm inist ratio n of budg et (wha t s_hould be cont
cont rol).
. a1 capa
. t10n · b·l·t . l for
( lear thin king ) is esse ntia
1 1 ·1es c
2 . Sound orga ruza
budg etin g.
suri ng and reco rdin g
3. An accu rate and adeq uate syst em of mea
tota l sup port of top
perf orm ance . The budg et mak ing mus t receive
man agem ent (evaluation). .
curr ent even ts shou ld be
4. Tim ely and regu lar syste m of repo rting of
of actu al resu lts for
devel(?ped to keep responsible peop le ~or med
acco unti ng and cost ing
time ly correction. There _mus t be an effective
syst em.
d for all pha ses of the firm.
5. Clea rly defi ned policies i,hould be estab lishe
diffe rent dep artm ents and
6. Free and fran k com mun icati on betw een
lar ~ee tings of bud get
mem bers of the orga i;uza tion thro ugh regu
supp ort the syst em.
com mitt ee. All leve l staff mus t und ersta nd and
und er bud gets mus t
All man ager s expe cted to adm inist er and live
und erst and the bud get
hav e a part in thef r prep arat ion, so that they
and are loya l to them .
ssar y for the form ula tion of
7. Effi cien t fore cast ing and rese arch 'i s nece
ed to obta in desi red
real istic budg ets. Sufficient time should be allow
ld be ap p ropr iate to
resu lts from bud geti ng. The budg et p erio d shou
the natu re of the firm. ~

ng. Due cred it sh ould be

8. Hum an facto r is very imp orta nt in bud geti
achi eve bud gete d resu lts
give n for the job well done. Pers ons unab le to
desi gned only as tool s
shou ld be held acco unta ble. Bud get shou ld be
ld not be over don e to
and not to repl ace man agem ent. Budget shou
serio usly com prom ise the auth ority of m anag
ers. ctiottPfl'
Selj-Jnstrtl
 9. The syste:rn should b . di .ons of
the ParticuJ. ·e designed to meet the needs and con ti
regular :U-. enterptjse_ Proper flexibility,. through alternative budgets,
revisions et ects
of sound b u d geting.' c., and effective follow-up are impor:t¥lt asp
10.
Key to effective b . . .i , ·_1 • b
h
J.uc a manag ,
w1...! udgetmg lS developing and proVIcilng standards, Y
material . mone er s Works can be translated into . needs for · manpower,
11. ' Y and ~ther resources. , -
Budgetary control should not be used in situations.where other control
systems are :more suitable. ,.
12.
It should not be implied to all departments in first go and .sho~d l;>e
started on a · · · ·. . . . ~· · •
s:rnall-scale an~ extended as expenence IS gamed.
How Budgetary Control is Applied? , '
Budgetary control is enforced to accomplish the goals and objectives of the
Hotel. For this it is important to follow the course of action that would make
the realization of budgeted targets possible. 'Whenever the manager find that
there are deviations in actuals from the budgeted·targets, he i:nust immediately
find the cause thereof and promptly-decide and implement the corrective action
to set those deviations right.

Essentials of Effective Budgetary Control

1 .- Quick reporting. Juniors who are actual operator are required to submit
a performance report immediately (at regular intervals) to-their boss.
Further, these reports must be analysed quickly on the basis of the
past data and other available information for quick remedial action to 1I
be taken. · · · 1·

2. Seriousness in implementatio·n . This is important that top

m~agement ~ust fake the budget seriously. Only then will the juniors
·have the s~nse of seriousness. . ·· ·

3 _ Responsibility ma,tche4 by authori~. Care should _be taken that all

those who have been made responsible to accomplish the budgeted
, e o-
targe t s. ar . . o priate aµthority to_do so. We . cannot expect
oiven appr_
. results fr om the person· wh<;> . . for the results
. has been. macie responsible
unless we gi·ve · him -proper authority
, to. enforce his· decisions and
desires. .
4': Rewards and punishments. "As p~r thde perfor.m.ance, the employees
must be sw·tably awarded, appreciate or purushed.
. There showd be no hesitation in changing/mon,f. .,:_
5 Flexibility. . ~yulg or
' ' ,,.
· refining the, b u d g et from time to time. as per the current need Which
~I~<YJateru,z
..
 ·
Will be broad ly depen dent on busine ss conditi... ons and variou s other
factors . But at the same time, budge t figures should not be altered too
much or too often.
6. Ha'Ve patien ts. Don't expect results overni ght. It alway s takes time to
show results . Don't lose patien ce and start modif ying the budge t
Witho ut some real sensib le reason . Also, those operat ing it need to
have a high degree of knowl edge and experi ence in the field. Frequ ent
chang es in budge t are usuall y ridicu led by the junior s which may
demor alise the budge t planne rs.

Adva ntag es of Budg et Cont rol

Some of the advan tages of budge tary contro l are as follows:
l. Elimi nates uncer tainty . It provid es a plann ed appro ach to every
activit y of Hotel within which expens es have to be incurr ed and results
achiev ed. This elimin ates uncert ainty and ensure s that the hotel is not
caugh t unawa re in the face of actual situati on.
2. Resul t of variou s brains. Since top manag ement brains are involv ed
in makin g the budge t, this insure s agains t budge ts being frame d
accord ing to subjec tive standa rd and a single individ ual.
3. Good incent ives to worke rs at times. High standa rd budge t at times
provid e incent ive to emplo yees to work toward s the fulfilm ent of it.
4. Optim um use of capital resources. It guides the Hotel to use its capita
l
resour ces in most profita ble manne r.
5. Easy availa bility of worki ng capital. The cash receip ts and expen ses
budge t ensure s that suffici ent worki ng capita l and other necess ary
resour ces for efficie nt functio ning of the busine ss are availab le.
6. Effec tive coord inatio n. Budge ting makes coord inatio n betwe en
variou s depart ments more effective as the goals of each depart ment
are interli nked with other for the achiev ement of Hotel goal in totalit y.
7. Respo nsibil ity can be pinpo inted. This pinpoi nts the person on whom
the respon sibilit y can be fixed.
8. Spotl ight on deviat ion. Deviat ions can be pinpo inted and areas of
weakn ess can be discov ered and suitabl e correc tive action can be taken
to bring the perfor mance to requir ed standa rds.
9. Optim um utiliza tion of man, machi ne and material. Budge ting aims
at distri buting produ ction progr amme accord ing to produ ction
capac ity and makes most effecti ve utiliza tion of men, materi al and
machi ne possib le.
10. Serve s as a beaco n light. Budge ting provid es a bench mark for actual
perfor mance and shows the path to achiev e the standa rds.
twriPl
Seif-Instrl''
Lbnlt attons
Of )3
Budget ingsUf£ Uclgettng
ers froll'\
(i) Budget s the foUo'Win .
Th are estun g disadvantages:
ey are as ates and can
Inflatio n good as the d t never be hundred per cent accurate.
budget d anct rapid changa a_ and forecasts on which they are based.
(1·1·) Th b ata hefore they es in business .
environm ent tend to distort
e Udget is sun l are put to operation
for it. An . . P Ya toolto effi . ·
eH ti . efficient syste oent management and not a substitute
ec ve pl rn of hudg tin
(iii) anning and e g can achieve nothing without
Budget s cann control.
t ot guide as tO h .
no an outlive d w at action should be taken. Similarly, it is
conditi ons. program me that must be adhered to under all
(iv) Sound system of effectiv .. . .
would make th b e supervision 1s necessary and the lack of it
e udget ineffective
(v) Budget ing entails th ..
consci·o th. e danger of inflexibility as.everybody becomes
us at they t dh
they may be called ·musffi •
a ere to the projected budget, otherwise
me c1ent. The budget is not a strait jacket thing
but a measur e of performance and a guide which should be adjusted
to meet new situations.
(vi) Budge~ may ~e mis~sed by the bosses to find faults in employees and
restrict performance rather than improve it.
(vii) The initiativ e and creativity in .an employee may be hampered if the
I
supervi sor and bosses stick to budgets strictly.
(viii) Budget ing is a time-consuming process and involves expenses. There
is a tendenc y of going into excessive details which restricts freedom of
action.
ix) • oals may lead people to supersede the enterprise goals.
( Budge ~g !a be used to hide inefficiencies as past practices become
Budget ing thy nt The fact that a certain expenditur~ was ~ade
.d for e prese . .
ev1 ence .dence of its responsibileness in the present.
t becomes ev1 .
in t h e pas d t afeguard against over-emphasis on factors
. also the nee o s .
There 1s . r to observe.
to be eas1e
that happen ds on the motivation of people who are to
ess of budgeti ng depen cannot change their habits and attitude
(x) Suc C d ts Peop1
. ll and use bu ge · . ebudgeti ng should be a gradual and
)llSta o be effective,
overni ght. T . . .
tlve exercise, . rcise. It provides an opportunity to
cooper a
aking is aternpong exe et to arise. But sometim . . . ,. "
es m therr
(XI.) Budget 01. ·th situauOl. ~ r1c:.
.., that w y
areboxing'
the h o te1 management may
grapple W1 d Jge in 'shado aking can be effective only when
desire to in u t thereof. Budget rn
the cos
overlo0 k
 l
d the benefits No1,,
f the system an ~
. een the cost o
there is some correlation betw fully
. th success
to be derived from it. th end being e thi is not
. tO an end, e I-I0 wever, s
(xii) Budgeting IS but a means • · actual results. • of a budget
attaining of budgetary targets mto d that introducbon cution.
. ft assume sful exe
always the case. It IS too o en antee its succes
Programme by itself is not enough to guar. . at proper decisions, yet
. b" h Ip in arnvtng agement.
(xiii) Although budgeting IS a ig e a tool of man
· t ather than as _1,;.,.... cover
very often it is seen as a substitu er ment If tcUUJ- .g
. d manage · b t
Budgeting is not a substitute to a goo . b . to choose the es
hose JO is ·
under budgeting the managemen't w . blind eye to its
f tion turns a
amongst the alternative courses O ac ' ·t tion may lead to
. k" then the si ua
responsibility of decision-ma mg,
harmful consequences for ·the business.

Sales Budget
- al required to produce
This means projection of the minimum volume Of s es
· · . . d d thus subsequent1y
necessary operating profit in respect of a trading pei;10 an ' ' f th
enable~ assessment of the s~es perf~rmance of the business at the_e nd O
at
· · · · · b d
period. In most establishments sales forecasting is the basis of u ge g tin of all
kinds. Sales are perhaps the most difficult to forecast ·and yet the success of
entire budgeting depends on how accurately these are forecasted. A sales budget
shows what produce will be sold, in what quantities and at what prices.
Sales estimates are prepared by Sales Manager who is assisted by salesmen
and market research officers. Past sales, present market conditions, extent of
advertising, competition ·conditions, etc., serve as basis for preparing sales
forecast. ·
Considering th~ above ex~mple, we can compute the minimum gross
volume of sales which, producing (say) a 15% operating profit, will result in
the ·required Rs. 15,00,000 operating result proJ·ected by th b d
e u get. As
Rs. 15,00,000 represents 150Yo of Rs. 1,00,00,000, so the figure of Rs 1
shows the sales volume required. · · ' 00' 00,000
As per the above hypothetical case various types of
. , rooms the hotel uld
include are, say, two categories - one standard i e . wo
1
' · ·,singe double d ·
and second category of special' rooms such as pe th ' an twins,
. , n ouse and d 1 .
etc. Hotel would have divergent direct prime cost f e uxe smtes,
actors hen 1•t .
to project a division of this sales volume as betwe th ' ce 1s necessary
. m etwo~ •
(as mentioned above). These divisions will va .h egones of rooms
. ry wit the pr 0 fil
us suppose m the above example, the hot 1 . . . e of hotels. Let
f . e is pnmanly 11·
category o rooms, 1.e., standards (single, double and . se 1ng the first
category (penthouse, suites and deluxe s ·t ) . twins) and the seco d
. u1 es is se n
nnportance. If we assume that first category condary in v ol
sa1es will ume
run 75% of total sales
I

I JAal~
Seif-Instructiona
 fv{ANAGEMENT-II
1fflcE •
I.e., of Rs. 1,0 0,0 0' 000, the n th .· • . .
IIJ"
t cat ego ry sha ll be· app rox una tel y
ure for firs
ii,,,,~
:;;, ..- Rs. 75, 00, 000 and th at of s edfig
econ category shall be Rs. 25,00,000
respectively.
Sales B March 2007
ud get of Ro om s from January to
To :GM /M o From: F.O. Manager
Fro nt Off ice Dep tt. Rate per room
Am oun t
No. of rooms
Rs. Rs.
budget
Room Sales -
Single (say) 6,000 4,000 2,40,00,000
Double 5,000 7,000 3,50,00,000
Twins (say) 1,000 11,000 1,10,00,000
Sun day Sales
Efficiency rooms (say) 10,000 20,00,000
200
Deluxe and penthouse
suites (say) 15,000 15,00,000
100

Th e Sal es Bu dge t IS · the mo st rm . por tan t bud get no t onl y bec aus e of the
.
. e 1t . lue nce s the
. inf
inf lue nce of the vo lume of sales on pro fit bu t also becaus
inf lue nce
the bud get ed vol um e of sales wo uld
pre par ati on of oth er bud get . Th us o.
dg ete d cos t, suc h as lab our etc. , and to som e extent ove rhe ads als
var iou s bu . He nce
h budget, capital exp end itu re, bud get
Sim ila rly , it wil l als o influence cas ati on of
hig hes t pos sib le deg ree of acc uracy mu st be atta ine d in the pre par
the
bu dg et.
ren t
l dep end on pas t per for ma nce , cur
Th e bu dg ete d vol um e of sales wil
d som e spe cia l eve nts , etc ., and also on ma ny lim itin g factors wh ich
tre nd s, an con sid ere d
is always the sta rtin g poi nt to be
ma y be in ope rat ion . Pas t sales mo st
pro jec tin g the sal es vol um e. In ord er to ma ke the pas t fig ure
wh ile
is im por tan t to exc lud e all suc h sales fro m the pas t sales fig ure s
me ani ng ful , it sales,
usu all y do no t occ ur, and to con sider onl y the nor ma lly rec urr ing
wh ich sid ere d. Fo r
cur rin g nat ure sho uld no t be con
i.e., the tra nsa cti ons of a non -re ure of
le, the pre vio us sal es fig ure s for a par ticu lar yea r, ma y inc lud e fig
exa mp and a lot
"G old en Jubilee" of its fou nda tio n
sal es wh en the cit y cel ebr ate d the com e to par tic ipa te in
. t -might hav e sta yed in the hot el, wh o had • •
•
ma ny tou ns s .u.u. this occasion. No w since this bus ine ss 1s of non -re pet itiv e
•

. of
the ceIe b ra tion s (w hic h wil l no t be
lum e gen era ted irt tha t par ticu lar yea r
Vo
na tur e so thesal)es ho uld be exc lud ed. An y ana lys is of pa st sal es sho uld
' .
ge ne rat ed no w s s of roo ms (as exp lai ned ear lier ) an d
. ari ous cat ego rie
enu e.
dis tin gu ish bet we en v ·sts in eac h com pon ent par t of the tot al sales rev
d
det erm ine wh at tre n eXI ertained, nex t it is nec ess ary
.m the sales hav e bee.n asc . .
d
Wh . n the tru e tre n st t pas t figures are ind ica tiv e of wh at sal es vo lum e
e of sev era l
d
'd
ec1 e as
to wh at ex fut
en
ur Th is fur the r involves a detaile d rev iew
to din the e.
ma y be exp ect e

l,.,
l zonal Material

!
 loyinent in the
·es the state of emP ·ously
factors such as conditions of local induStI'l ' t policyi etc. ObVl '
. . . al ·tu ti·on goverrunen b budgeted
locality concerned, the politic SI a ' hich may e
1ume of sales w
all these will have some effect on the vo . being drafted.
hich the budget IS
for the specific trading period for w . . . factors may be in
.d h t possible limiting .
Finally, it is necessary to consI er w a d t factor or govemmg
· ·pal bu ge
operation. A limiting factor (key factor, pnno further expansion of
factor) is one which limits the volume of sales and makes
sales difficult or impossible.
Some of the limiting factors of hotel industry are as follows: _ / . · ..,,,..--
dation available IS sold,
(a) Accommodation available: Once all accommo £ t
. .bl This •limiting ac or
no further expansion of rooms sales IS possi e. .
15
indirectly affects food and beverage sales also, as there some
. d the food sales of
relationship between the rate of occupancy an
residential establishmen t. This limitation factor operate~ _in all
residential hotels (hotels, motels, hostels, etc.) mainly. Similarly, seating
capacity of a restaurant can be considered while making Food and
I
Beverage Department budget.
(b) Managemen t policy: E~pansion of sales may be difficult as a result of
management policy, which may exclude certain types of customers.
(c) Insufficient capital: This inay prevent a further expansion of sales
through the mobility of business to acquire further units or failure to
modernize the existing facilities.
(d) Efficiency of management and the quality of managemen t and labour
will also be an important aspect which will affect the volume of sales
·' which may be expected in any one specific trading period.
(e) Consumer demand: This may be unfavourable owin to co . .
· · or other reasons.
" · a d vertismg
·meuective g mpetition,

Se)Hng and Distributio n Cost Budget

This budget forecasts the cost of selling and distrib u tin.g products d · h
.
budget period. It is based on Sales Budget, in that s a1es estimated unng t e
.
.
· costs to be incurred in selling and distribution . ThiS b U d get IS. point to the
. J
by Sales Manager, the Advertising Manager and 0 . tr·b . Joint Y prepared
Is i utionM
of a Hotel Industry, let us study the following exam 1 anager . In case
P e. The cost Of Sal
(amount available for cost and expenses) is the cost of keep · es Budget
h
for sales and is usually predetermin ed and u mg t e rooms ready
. . sua11Y consid d .
maintain the cost of sales at the predetermine d level ere sufficien t to
. ' kind of rooms or another ·
· ·- o'f one · Whether the total cost of
s ales consISts , is not regard d
importance. Thus with changes from one sp .fi . e as being of p rime
ec1 C p eriod of tun
e to another
· rial /JI
Self-Instrucl 10
Ir
'~off!
ell ,<ANAGEMENT-D
. . .
7
"ofll pen od of time, som fun changes in cost. Although· th~•
!!- - min or chan maye_be ·es there are some minor
ges
unportant for.budgeting purpose, yet 1;hey are not very
imp orta nt fr , . ant-·
om the bud tin .
view and wha t is mor e ,rmP ?t:. ~,. -,
establishment to e . ge . g pdmt of bud g~~ . . :: · , \,
trad ing-a ·arn.the correct rate of gross profit. As a result, the
~rofit ~ Loss Account1sin.ore ·imp ortk t.i Let
us \ '
consider thccount ?r Trad1ing c1:·
· d ·example to..___explain the Cost andJExpense bu- -get: _
e earl
, ·
iet exp ame
~\
. '\
\ ·Amount %

sa1es 100
.profit· reqw..red- 15
..1 , . . ..Less
., . , -tmg
: \Op~ra . Rs. 15,00,000
85
· B~~c~ a:vaii~ble for rooms, payroll and Rs.-85,00,000
Qfe~ating expenses -
of the total sales volume
Th~ we find that a total of Rs 85 00 000 or 85%
• \ , .._
• I I

.
rem ains to be spre ad over the costs and expenses
~g to be ~pread qver ~e
Wit h 85% of each rupee_of sales (85 paise) rem
agement, bus ines s ove rhea ds,
cost s of Rur chas es, payroll, supplies, man
on maintenance, jetc., it is now
adv ertis ing, heat , light, power and expenses
ting style and scale of operation
nece ssar y to appreciate carefully, either the exis
establishment. Pri_ces, type qf
or the plan s in this respect in the case of a new
blished before entering into the
service, hou rs of service, etc., all must be esta
nex t pha se o{b uild ing a budget.
each rupe e of s~e s to spre ad
Now b_e ~g in ffi!Ild that we have 85 paise of
set dow n the type or grou ps of
ove r all the ope ratin g costs and expenses, we
· · · ·
suc h costs and expenses to be provided for: ·
1. Cos t of room sales
2. Ope rati ng labour payroll
er direct operating supplies and expenses
3_ Oth
4. Man age men t compensation
.er administrative expenses
5. 0th s
ayroll taxes and other employees related expense
6. Lab our p
7.. Adv erti sing and promotion
8. Hea t, ligh t and pow er
. · and maintenance o
9. Rep airs as nec essa ry
ur experience, let us bud get 1.51/o of sales
O
2% of sales as man age men t
Now bas ed ond ti'sing and prom otio n and .
di ture on a ver base d on the exp ene nce of othe rs in the
exp en urth let us say that
.
tiOn F er, s volu me, we bud get
com pen sa • • . and hav ing approXlffiately sam e sale
· exp ense s
dmini"stra tive
ofb usm essIi ht and pow er expenses, other a
sam e typ e . d .
al for hea t, g % of sales for ord'mary reparrs an mai nten anc e and
2% o f s es
al , and say, 2·1
at 4% of s es '

/.fns1
l'llctiona[ Material
 h . ary business
ence based on realistically, and upon the knowIedge. of orddmt of this part
.
considerations . tentative bu ge
and requirements, the fo11owing
may be ~stablished:
% of sales Amount
(Rs. 1,00,00,000)
Management Compensation 2.0% of sales Rs. 2,00,000
Other Administrative Expenses 4.0% of sales Rs. 4,00,000
Advertising and Promotion 1.5% of sales Rs. 1,50,000
Heat, Light and Power 2.0% of sales Rs. 2,00,000
Repairs and Maintenance 2.1 % of sales Rs. 11,60,000
11.6% of sales Rs. 11,60,000

Further, it is usually a traditional understanding that cost of doing business

includes two heads, one management compensation and the other
administrative expenses. Hence, in the above case, it will be 4 + 2%, i.e., 6% of
sales and that would co.rp.e out to be Rs. 6,00,000 (Rs: 2,00,000 + Rs. 4,00,000) as
shown above.

Now, accepting this part of budget as practicable, we are now left with
73.4% (85--11.6%) of sales volume or 73.4 paise of each rupee of sales or with
Rs. 73,40,000 for the balance of the budget. This 73.4 paise of each rupee of sales
must provide for cost of rooms for guests, wages of staff involved with room
preparations and sales direct operating supplies and charges, taxes on payroll
and fringe benefits for employees.

Labour Cost Budget (Payroll Cost Budget)

Labour costs are budgeted in relation to the budgeted volume of sales. Labour
budget gives the estimate of labour requirements to meet the production needs
during the budgeted period. The budget includes both direct and indirect labour
requirements in most cases. In some cases it gives only direct labour requirement,
and the indirect labour requirement being separately shown in manufactunn
expenses, for example, the labour required for selling room may include Fron~
Office, Housekeeping and Maintenance labour in most cases and are considered
separately in some cases. This budget rugo enables the H.R Manager in preparing
suitable plans of recnntment and trammg of labour. Hence, higher the volume
of sales higher is the cost of labour and vice-versa. Here we take • t
, . ' m o account
that prior to the planrung of b~dg~t, the standards, etc., have already been
established and room sellmg policy 1.e., the room tariff policy has alr d b
. these factors have been established then an ea y. een
decided. Further, if
. the number of pe
. deternune
Front Office Manager can very easily experienced
rsonne1needed
I /vfO
Self-Instructiorlfl
 - , .. NAGEMENT-11
~~-
~off! '
to m ee t th e an tic ip . f ca lc ul at io n
ai ns a re la ti ve ly s ~~~o
l ~ofll at ed sa le s an d re m
~
w it h go in g w ag e
ra te s to ar ri ve at h op er at in g p ay a
ro
L et us sa y th e Fr th e to ta l ru pe es
on t Office M an ag . th is of ca ~ d d a fi gu re 27 % o f
sa le s vo lu m e (27 er m ca s e ha s dec1 e00
pa is e of a ru pe e sa
les), i.e., a su m of 27 ,0 00 (i .e ., 27o/40 of
R s. 1,00,00,000) w R s. '
il l be to w ar ds la bo
ur cost.
L ab ou r co st s ar e, . t not be
ho w ev er , in th e na
as su m ed th at .· tu re of a se ro if ix ed co st ; it m u s .
a gi ve n in cr ea se in al ar il y re su lt in
a pr op or ti on at e th e vo lu m e of s es m us t ne ce ss
in cr ea se in la bo . si n g m a n y
co m po ne nt s of th ur co st s. W he n sa le s ar e rt ,
e to ta l co st of la bo . fi ed em en t an d
ur ·re m ai n x e g m
su pe rv is or y sa la
ri es . A la bo ur co · ., an b
ag
an al yt ic al ly , w it h st bu dg et m us t , th er ef or e e ap p ro ac h ed
du e re ga rd s to th '
ot he rs te nd to va ry e fact th at so m e la bo ur co st s ar e· fi xe d an d
in th e sa m e di re ct . ,
ap pr oa ch is im po io n as th e vo lu m al yt ic al
rt an t in th e ca se of e of sa le s. T hi s an
a se as on al ho te l t of
la bo ur co st s to a w he re th e ad ju 5 tr n en
ch an gi. ng vo lu m e
of sa le s pr es en ts
A pa rt fr om bu dg a gr ea te r pr ob le m .
et ed sa le s vo lu m e,
for pr ep ar in g la bo ot he r fa ct or s to b ta ke n in to ac co
ur cost bu dg et ar e e -• unt
as fo llo w s:
(a) .T he nu m be r ·
an d gr ad es of staf
f in ea ch de pa rt m
(b ) T he bu dg et ed en t.
ra te of pa y for ea
ch gr ad e of st af f.
(c) C as ua l an d pa
rt -t im e la bo ur .
(d ) C os t of H ea lt
h In su ra nc e, etc.
(e) A ll ot he r la bo
ur co st s su ch as
ho li da ys w it h pa y, st af f m ea ls , st af
bo nu s an d co m m f ac co m m o d at
is si on , et c. io n ,
T he la bo ur co st bu •
dg et ha s to sh ow
ea ch de pa rt m en t a se pa ra te de pa rt
of a bu s~ es ~ an d m en ta l la b o u r co
in th is w ay , as si gn st fo r
co st ce ili ng to th e re sp on si bi li ty fo
de pa rt m en ta l m an r la b o u r
ag er s co nc er ne d.
L ab ou r R el a te d
a n d L ab ou r T a x
es B u d g et
•F urth er ha vi ng fixed
th e ru pe es of pa yr
ra te em pl oy ee s ol l co st fo r th e bu
' co m pe ns at io n ra te s, dg et , th e p ay ro
etc., ca n be ea si ll ta x es
bu dg et ed fi gu re in ly fi xe d to
_. te rm s of ru pe es fo .
r ta xe s on pa yr ol
re la ti on s. In ca se
of th e ab ov e ex am l an d em p l ar ri v e at th e
pl e, le t us sa y l ' · ,
pa is a' of on e ru pe .
e of sa le s 1s ·.4% of sa l oy fi
ee s p u b li c
th is w il l co m e ou th e la bo ur re la te
t to be Rs 1,40,000 d ta xe s an d o th es g u re o r 1 4
. ·
er ex p en se s th en
D IR E C T -O P E R
A T IN G S U P P L
BUDGET) IE S C O S T (O V
ERHE
A n ov er he ad co st AD COST
· su
· bd bu dg et m ay be
ivid ed bud ge ts m pr ep ar ed as on e si ng le b
· to
i11,111s se ve ra1 se pa ra te b
tru ctio.. _, ' ov erhP..:irl r u d ge t~ -P ~ udg e
 se pa ra te bu dg et s, su
ch as administration ffi
an d m ai nt en an ce bu cost bu dg et , 0 ce ex pe ns e bu dg et
di r t dg et , etc. m ay be pr th is gr ou p of
ec op er at in· . ep ar ed . Fu rth er , un de
1 '
g su pp lie s an d expe rl ik un if or m s
au ndr y, lic
·
ences, tariff ca rd , su
nses, th e cost O f suc h ite m s e
. . 1 d d W e'
m ig ht pr oj ec t lim its nd ry supplie ·
s, statio ry etc ar e m e
b t th of am ou nt s for these ne ' ., . thuisegr·ou p
u va rio us items of ex pe ns es m
e m or e realistic ap pr
oa ch w ou ld ag ai n be th ge ne ra l ex pe ne . ~
the su cc es sf ul Fr . . . to us e e nc e o
on t Office M an ag er m
al low an ce m . similar ty pe O f b us m . es s w it h re sp ec t to
ru pe es an d pa is as pe
thes e ex pe ns es. Sa y an al r ru pe e of gross s aleS for th e en tir e gr ou p o f
lowance of 7.5% pe r , .
ru pe e sa le , or Rs 7 sales vo lu m e, i.e., 75
,50,000 in case of th pr os e p~ r
e above ex am pl e, is
gr ou p of ex pe ns es
. Th e m os t im po rt an bu dg et ed fo r ~
ac co un t in th e pr ep t ite m sw c hi h h to be ta ke n in to
ar at io n of th e 'O ve rh av e
ea d C os t B ud ge t' ar
(a) R en t an d ra te s e:

(b ) R ep ai rs , re pl ac
em en t an d deprecia
tion
(c) G as an d electri
city
- (d ) Po st ag e an d
te le ph on es
(e) Pr in tin g an d st
at io ne ry
(f) In te re st pa ya bl
e an d ba nk ch ar ge s
(g) A cc ou nt an cy an
d le ga l fees
th) A dv er tis in g, etc.
N ow be fo re w e co ns
id er th e ex am pl e th at
be gi nn in g, it_i,s -~ po is be in g di sc us se d
rt an t to un de rs ta nd ri gh t fr om th e
it em s in cl ud ed in an d ap pr ec ia te th at th e m
th e ov er he ad co st bu aj or ity of
an d th at m os t of th dg et ar e of a fi xe d or se m i-
em ar e in cu rr ed on fi xe d na tu re
no rm a\ ly is no ne be ha lf of th e bu si ne
ed to ap po rt io n ov ss as a w ho le . T he re
de pa rt m en ts of a bu er he ad ex pe nd it ur e be tw ee n va
si ne ss as ~ e in~i vi ri ou s
or no co nt ro l ov er du al de pa rt m en t m an ag
su ch ex pe nd itu re. T er s ha ve li ttl e .
ex am pl e, th e ex pe nd h~ re ar e us ua lly so m e ex cept io ns to
itu re on re pl ac em en , fo r
al um in iu m ra ck s, t of lig ht eq ui pm en t su ch as
sh an no n ca rr ie rs , li gh t bu lb s,
li gh t be ll de sk eq da te an d ti m e pu
ui pm en t, fo r ex am nc hi ng m ac hi ne s,
ov :e rh ea 4 sh ou ld pl e, sc is so r, ta pes , et c., bu t ge
be re ga rd ed as a ch ne ra ll y
gr os s pr of it s an d ar ge ag ai ns t th e to tal of
no t as a ch ar ge a de pa rt men ta l
ga inst in dividu al
de pa rt m en ts : re ve n ue p ro du ci
ng
Fo ll ow in g is th e ex
am pl e ba se d on th e
p re viou sl y as su m ed
ot he r da ta . sa les fi gu re and
 cE MANAGEMENT-II
~offl

"'"'
;;..---
Operating E
Xpenses Budget

Operating payr ll Amount % of sq.!es

Other direct opo (~s calculated earlier)
(a 1 eratmg sup li Rs. 27,00,000 27~0%
s ca eulated earlier) P es and expenses
Management com e . Rs. 7,50,000 7.5%
Other administraJ nsation (as calculated earlier) Rs. 2,00;000 2.0%
earlier) ve expenses (as calculated
Payroll taxes and oth Rs. 4,00,000 4.0%
(as calcuiated earlier)er employees relations
Advertisement and Rs. 1,40,000 1.4%
earlier) promotion (as calculated
Heat, light and · Rs. 1,50,000 1.5%
Re airs :power (as calculated earlier) Rs. 2,00,000 2.0%
p and maintenance (as calculated earlier) Rs. 2,10,000 2.1%
Total
Rs. 47,50,000 47.5%

Now, by studying the above table, we come to know that our cost of sales
must be limited to 37.5% of the total sales or 37.5 paise of each ru~ee sale or in
case of the above example, this comes out to be Rs 37,50,000/- of the total
projected sales volume of Rs 1,00,000/-, if our calculations and our estimates of
requirements for other costs and expenses are to be accepted as realistic
projection of requirements. To measure the feasibility of such a budg~t limitation
on rooms in totality, we will have to project the potentials separately for the
first category of rooms (standard, doubles and twins, etc.) and the second
category (suites, etc.). With the specific data at hand, such as tariff, price range
policy, etc., at hand, it becomes possible to compute the theoretical potential
cost per rupee of sale. Such calculations of potential cost for measurement against
actuals recorded cost aie regularly made on a daily basis in many operations
using the pre-cost pre-control system.
Cost of Sales Budget
The following table explains clearly the cost of sales budget.
Amount % of sales
Rs. 1,00,00,000 100
Sales
Division of sales( . le double, twins, etc.) Rs. 75,00,000 75
Standard rooms sing ' (suites, pent
Special/Deluxe rooms ............. .
Rs. 25,00,000 25
house suites, etc.)
Rs. 1,00,00,000 100

Cost of sales 40% of 75,00,000 Rs. 30,00,000 30

For standard rooms, samsy say 30% of 25,00,000 Rs. 7,50,000 7.5
deluxe roo ,
For special/ Rs. 37,50,000 37.5

OFIT AND LOSS ACCOUNT

BUDGETED PRd eted p rofit & Loss account is to predetermine, in respect of

1
' f·Itis1
r«ctiona1 Material
The Purp ose of ..Jbu
·cular
a parti trauu•g
g . d all income and expenditure of business as well as
:,.. peno ,
r

r
 .
the ne t pro fit to be ear
ne d. The bu dg ete d pro fit . d loss acc ou nt rnu st be dr aw n
up so as to sh ow wh at is an de pa rtm en tal gro ss
im po rta nt an d pe rti ne nt' e.g.,
fi 1
pr o t, ab ou r co st percenta e an d the ne t pr o fit ·
ge, the overh ead cost pe rce nta g
.
W he re a sy ste m of bu dg eta . · op era tio n for so rne tun e, the
b d ry co ntr ol is ID
u ge ts ten d to be pre pa red d tai ne d are us ua lly
li "b ski lfu lly an an y va ria nc es.
ascer .
bu dg ete d pr of it
ne g gi le. W he re tha t is so,
the ad va nta ge s O f dra
.
wi ng up a
. of a tra din g pe rio d it is
an d los s acc ou nt are consid
erable, as at the beginIUilg
po ssi ble to de cid e ho w mu d by the en d of
ch ne t profit will ha ve be en
tha t pe rio d. ea rne
Th e following ex am ple illustr .
ates a ve ry sim ple for m of the bu dg ete d pr of it
an d los s acc ou nt.
Bu dg ete d Profit & Loss Ac
count for Quarter en din g on
30 th June 2007 '
[Let us pre su me the total nu
mb er of roo ms are classified
Sta nd ard (Single, Do ub le an int o 3 gr ou ps , i.e .,
d Twins), Suites an d De lux e
an d Sp eci al Su ite s]
Sta nda rd Rooms Suites De lux e/ To tal
(Single, Double
Special
and Suites) .
Suites
Rupees % Rupees % Rup ee~ % Rupees %
Sal es 3,00,00,000 100 2;00,00,000
Less: Co st 100 1,00,00,000 100 6,0 0,0 0,0 00 100
of sal es 1,20,00,000 40 1,00,00,000 50 40,00,000 40 2,6 0,0 0,0 00 43
Gro ss Pro fit 1,80,00,000 60 1,00,00,000 50 60,00,000 -
60 3,4 0,0 0,0 00 _· 57
Less: Labour Co st Wages and
Salaries Rs. 1,10,00,000
Ins ura nce
Rs. 15,00,000
qtaff Meals
. Rs. 25,00,000
Staff Welfare
Rs. 30,00,000
Ov erh ead s Rs. 1,80,00,000* 30%
Rents & Rates
Depreciation
Rs. 18,00,000 .
Repairs ·Rs . 22,000 · ·
Fuel & Pow er Rs. 16,83,000
Postage & Telephone Rs. 15,000
Pri ntin g & Stationery . Rs. 1,80,000
Ad ver tisi ng Rs. 28,00,000
Rs. 25,oo,ood
Rs. 90,00,000 ·,.,.
15%

Ne t Profit Rs. 2,70,00,000 .......

45%
Rs. 70,00,000****
11. 7%
Ex pla nat i?n of the figures
~•·
ma rke d wit h aste risks (*): · Say , 12% .
. .
,. Rs~ 1 80,00,000 This figure is 30% of Total '
. . Sal f·. · · . . .
,.,. Rs. 90,00,000 .
This figure is 15% of Total Sales igu re, Le., Rs. 6
,.,.,. Rs 2 70 00 000 Thi . ,00,00,000
. ' ' ' . s fi gur e ts
·
45% of Total Saleses fig ure i Rs
1s the sum total of bot h in t fi ' ..e., . 6,00,0 0,000.· ·
,. and *" figu res. ) gure, Le., Rs. 6,00 00 000 (Al
,.,.,.,. Rs erm s of percen tag e and ~l .s .
70 00 000 Thi fi · , th o it
. ' ' s gur e lS 11.7%, say 12% of so e sum of
also be obtained by sub tractin .
Rs. 6,00,00,0
g Rs. 2,70,00 OOO fr00. (Th is figu
'
re can
om Rs. 3,40,00,000)

L ·01101 ft
Seif-In.str11ct1
 - 1

off!CE _MANAGEMENT-II

~ ,,,
'•"., MAKING OF FRONT OFFICE BUDGET
,,, . Hotel, an d
:- -- - Fr on t Office is on e of the ma1or revenue producing departments of a
"bl d profitable
is re sp
e st sa tis fac tio n. Th is department's efficient an
~n si e for gu te l. As w e kn ow th at
op er at io ns af fe ct the ov er al l pr of ita bi lit y of th e Ho
. from this de pa rtm en t,
ap pr ox un at el y 70o/iO 0 r ev en m or e of revenue is generated a
. b an y other de pa rtm en t
so 1t ec om es all the m or e necessary th at more th an
bu d tin . /b . ntrol is exercised on this de pa rtm en t.
m or e co ns cio us ge g ud ge tar y co
th e
t Of fic e bu dg eti ng , we m ea n the bu dg et in g of
on
_When w e ta lk ab ou t Fr stu dy , let us sa y
Fr on t Of fic e de pa rtm ent. For the pu rp os e of
va rio us as pe ct s of tel ha s various sections su
ch as
rtm en t of a lar ge ho
that the Fr on t Office de pa th e
ll De sk , alt ho ug h in a smaller capacity ev en
d Be
Re se rv at io ns , Lo bb y an me un de r this de pa rtm
en t. N ow
an d Bi lls m ay als o co
Te le ph on es an d Ca sh fic e, we m ea n th e Departrp,e
ntal
e bu dg eti ng of Fr on t Of
w he n w e ta lk ab ou t th on su ch as
on t Of fic e, wh ich in clu de bu dg et s for each secti
M as te r Bu dg et of Fr y. In ot he r wo rd s th e Fr on
t Office
d Be ll De sk in di vi du all
Re se rv at io n, Lo bb y an s.
t in di vi du al bu dg et s from each of these area
M an ag er sh ou ld ge ea n
on s se cti on sh all gi ve its bu dg et wh ic h wi ll m
ati
Le t us sa y th at Reserv (n um be r of
of Re se rv ati on s fo r a specific pe rio d of tim e
th e bu dg et ed fig ur es co st of Reservation sy ste m ,
th at is
sh al l als o in clu de th e
bo ok in gs ). Th is bu dg et us ed in th e
rre d on va rio us eq ui pm en t an d sta tio ne ry
. to sa y, co st to be in cu th ei r re pl ac em en t, .ne w pu rc ha
se ,
Re se rv at io n Ra ck s,
sy st em , fo r ex am pl e, no n sli ps ,
so th e co st in cu rre d on sta tio ne ry lik e sh an
m ai nt en an ce , et c., al te r sy ste m, th en th e co st in cu rre
d
is on co m pu
Similarly, if it
re se rv at io n ca rd s, etc. rd w ar e an d if th e ne ed
be th e
re pa irs of co m pu te r ha
on m ai nt en an ce an d e pr es en t
ac hi ne , wh ic h m ay b~ for ad di ng on to th
m
pr oc ur em en t of ne w wi th th e ne w one. Si m ila rly , ot
he r
in g of th e pr es en t on e
in fr as tru ct ur e or re pl ac on, m or e te le ph on e lin es an d su ch
in g ra ck s fo r th e se cti . . .
. t lik e m or e fil tio ni ng of th e
eq w pm en ch m ay be ne ce ss ar y for th e efficient .fu nc
. en t w hi . . ur es . Fu rth er th e
ot he r eq w pm .at el y in ac hi ev in g th e bu dg et ed / .ta rg et ed fig
. d ultim ch m ea ns
se ct io n an o in cl ud e th e bu dg et ed figure of la bo ur , w hi
. bu dg et sh al l als th ifi" . d f w hi. ch th e bu dg et is
io n sp ec c pe rm or
re se rv at . fir it m ea ns th at for e .
. tl . pe op le . N ow
two th in gs , shay,t wi ll be th e re qw re m en t of staff, 1.e., nu m be r· of ·
w d
. · d fi gu re of re se rv ati"on. an if th ey ar e m or e
be m g m ad e,. th e bu dg et e . . .
this w ill de pe n d on ll be re qu ire d an d vi ce-versa. Se co nd ly ' it
. d m or e sta ff wi
et fo r
th th e pa st pe no '
la bo ur re la te d co st fo r th at pe rio d. Th e bu dg
st an d
an
th e la bo ur co Re se rv at io n M an ag er an d he m us t
·. ill be pr ep ar ed by th e
. .
m ea ns . . . a dr af t bu dg et
at io n se ct io n w ge sti on s of hi s 1uruors wh ile pr ep ar in g .
re se rv d ug . Bu dg et an d
Fi xe d
ak th e he lp anb s cl as sif ie d un de r va rio us he ad s su ch as
t e
Th e bu dg et ca n e
O pe ra tin g Bu dg et .

..
 . . . all also be prepared by other
On similar lines the sub-section budget sh . ls bine the
sections of Front O~ce such as Lobby and Bell Desk. Many hote comth lin
, also made on e es
Bell Desk budget with Lobby budget. These budgets are dl b ·
. enses budget an a our
0 f fix ed or static budget sales budget and operating exp . d
. ' bb b d et is usually prepare ,
and labour related expense budget etc. The Lo Y u g all
by Lobby Manager, but if it include~ the Bell Desk Budget also, w~ch norm Y
· the case, then he is assisted by the Bell Captain • m· compiling this budget.
IS
. . d hich are prepared by the
Fmally, on the basis of the sub-section bu gets, w
Reservatio n Manager and Lobby Manager, the Front Office Manager prepares
a Front Office Departme nt budget for the Hotel. The Front Office Mana~er t~es
the help and guidance from Lobby Manager and Reservation Manager m doing
so. Normally, the budgets for Front Office departmen t are prepared on quarterly
basis. While preparing the budget guidance is taken from past figures and
informati on. The marketing and sales departmen t of the ·hotel also helps in
preparing the final budget as they can also forecast the future/ expected business.
Further, it is also important that the·Lobby Manager and Reservatio n Manager
be given this budget for implementation onc.e it is approved by the Front Office
Manager and then·by the General Manager and Controller and then by the
Board of Directors.
Once the budget has been approved and given for implemen tation, it is 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
deviation was there must be found out and analysed. From time to time the'
refining of the budget-sh ould also be done (as·per the need) by the Front Office
Manager and ·the approval of higher authorities-for the same must be -taken
and·further communic ated to the concerned persons.

· REFININ G BUDGET
The term 'refining budget' can also be called as amending the bud get, or
adjusting the budget or modifying the budget. As the term says, this means to
char,ge, which may ~e increasing or decreasing the figures of the already
prep ared forecasted figures. Budge~, a~ we know, is a forecast, that is to say, a
projection of figures for future and 1s based -on certain assump tions which ma
be p ast figures or expected activities of future. Now since future is indefinite s~
whatever base we might have taken of the future' may occur or m ay not occur
at all or may occur partly or more than the expectatio n and hence when it will
come to actuals for that period, the actual figures may match, m ay b e more or
may be less than the projected figures. Suppose the budget is for a period of
.
one year' then it is always advisable to monitor the output after a regu1ar Interval
of time, say every quarterly. Further, let us say, for example, s uppose we h ave
[ Mflte#
Seif-InstrUctioTla
 ru,NAGEMENf-II
orficE
budgete d a sale of Rs · 1,00,00,000 over a period of three months , w hich means
f1fll .
:;.-- , .s hall be Rs. 33,33,333. Now at the en~ of
::~ro:_ mately oµr -~al~,S,V:~_ry,,n~m..th
th
ry on we must check whether we are meeting this figure. If, in actualit y,
we are meeting the fi gure at the end of say first month, that means our
' tage
.
· all nght
forecast ed targeted s ale 1s (keepin'g a margin of reasona ble percen
of ch~ge) , but if there is a lot of difference which may be both plus or minus,
then it means that our initial budget plannin g was wrong. Such varianc es have
to be studied and analysed unme · "
d 1ately and correcti•ve acti.on•taken, which
means, based on new circums tances, new targeted figures are to be calcula ted.
For :xam~l e, suppose we project 10,000 foreign tourists in the first quarter of
~e financia l year, that is from April to June, and by the middle of Februar y we
find that there are lots of problem s in the country , such as unstabl e governm ent,
highly increas ed terroris t activities in the region or outbrea k of an epidem ic,
then we must refine/m odify our targeted figure for the period from April to
June and may reduce the expecte d figure of tourists from 10,000 to say only
7,000. Reforec asting is normall y suggest ed when actual operatix lg results begin
to change signific antly from the original budget. This is possible only when the
operati on results are reviewe d from time to time, that is, at a regular interva l of
time. Origina l budget s, as already said, are made on the basis of certain
docume nts. It is importa nt that these facts must be preserv ed to provide an
explana tion as to why and on what basis the earlier decision s were taken. Such
records are also necessa ry for answeri ng question s which arise during budget
review. Refinin g of budget s is a very importa nt activity and it protect s the
establis hment from sufferin g a great loss. For example , suppos e we are exp~ti ng
10,00,00 0 tourists over a period of time, then to meet the challen ge of giving
them perfect service and product , we might have to employ extra labour, spend
more on bed linen, bath room linen, mainten ance, food and ·bevera ge and
housek eeping staff, etc. All this may be a waste of money if the expecte d numbe r
of tourists do not come, during that period, and we are not careful in refinin g/
modify ing our budget in due course of time. The refining of budget is done by
the same person who initially prepare d the budget, but he must be furnish ed
with facts and figures and data and informa tion by the operato rs in due course
of time, and regular ly. The Informa tion Syste~ of the Manag ement (MIS) must
be strong, efficien t and reliable . Compu ter aided MIS should be·used·for this
purpos e. Variou s sources , other than the Hotel, s_u ch as stati~~c s issued by the
Centra l Govern ment, State Govern ment, Tourism· authori ties or any other
be contact ed to collect informa tion. Hence, it is import ant
re1evant agencY may .
. . d relation s with all such agencie s.
to mainta in goo

FORE CAST ING ROOM REVENUE

making a revenu e forecas ts (budge t), the Front Office
For the purpos e o f . . . . . .
• d ast periods (any specifie d) financia l inform ation. This means
i~t Manag er nee s P
'1icr
Ionat Material
 t the Fro nt Off ice Ma nag er figu res
O th _ ·tte m in the inc rea se of
tha t the Res erv atio n Ma nag er shall sup ply
· ear s·and ' e L pa
for, say , thre e preV Ious Y t us sup pos e tha t eac h
of roo m rev enu e f per cen tage . e
. h oth etic al situ atio n,
rev enu e and also the increase.m1501 term s O . .
gh this IS a YP
. r the incr eas e in·rev enu e IS 1° (alt hou
yea
· b · ease cann ot be con stan t).
·r the mcr
- eca. Use -eve ry yea
Inc reas e of 15% eve ry yea r
.. ,
Year Roo m Rev enu e Rs. 75,00,000
-. · · · ; ~ -
. ~~04, ._. .Rs . 5100,oo,9oq .. 86,25,000
Rs.
' . · 2005·. Rs. 5,75,00,000 ·
· Rs. 99,18,750
200 6 . Rs . . 6,61 ,25, 900 .
. ' . .. Rs. 11,40,64,625
I

2007 Rs. 7,60,43, 750

4, 2005 and 2006 are for th~ pa~ t
The figu res in the table for the yea rs 200
ed figu re for 2007 as the ~oreca~ting IS
_years, whi le figu re for 2007 is the project
figu re for the yea r 200 7 m the Roo m
· don e in 2006'fo r 2007. Please.n ote tha t the
enu e at the end of the yea r 2006 and
Rev enu e! coh.imn of Rs. 7;60;43,750 is Rev n
- ·the beg inn ing of the yea r 2007,cwhile
the figu re of Rs. 11,40,64,625 in the col um
ease ove r the figu re of yea r 200 6. The
· 'Inc reas e of 15% -e ver y 'year~projected incr
st hav e bee n calc ulat ed at the beg inn ing
· ·bud get ed figu re of Rs. 11,40,64,625 mu
r_ · of-t he yea r 200 7·.or at·th
e end ·of,y ear 2006.
e Is on the bas is of pas t roo m s~e s
' · An oth er wa i of projecting 'roo m -rev enu
Sup pos e a ,hot el has 100 roo ms and
·an d AR R. Let -us stud y by an•example.
yea r 2004 is; say , 80%. The refo re, the
·.ave rag e occ upa ncy of. the hotel for the
,eat ~004 sha ll be 80/ 100 x 100 x36 5
num ber of roo ms sold ove r a-period·of.t hey
l _ro_o;m reye:r:m e for the yea r 200 1 is
- =. 29.,200 roo ms .and sup pos e -the tota
6,00,000 + 29200 =-J½. 4,000. Fur the r,
. Rs. _l _l,68,00,000. The n the·ARR sha1:} be 11,6
eas~d by 3% ~~ ey e¥ 2001 to 2002
_,w_e s_e e._~a t the _OCCJ:1-J?ancy percent&ge ini:r · ··
•
and from 80% it bec ame 83%,in 2005.. .
• • I • • I I - •• • • ' • -

. TofaI., ·. ',AR R
Year · · Total-No. ·occ upan cy' 'No: of room s· - .
I • room s.in . .% .s.olq dup ng _. Rev enue for ..
'.._
f

the hotel the yeµ the year (say)

, . ,. . . . 80 . ..
2004 .
.
- 100 · 29,200 Rs. 11',6~;00,000 Rs. 4,000
3 Rs. 15,40,00,000 Rs. ·s ,oos app rox.
:~~- _ . _ , :: . . o,295
_- ._ -: ~~~ : . . Rs. 5,676 approx.
., , 31,390 . . Rs: 17,~0,00,000·
,. ." .-
Rs: 6,751 app rox.
_ _ ~007 _ _ _ _ l_O? ~- _ _ ~ ~9 - _ _ _ 32,585. , Rs. 22,00,00,000
. .
3°1o, (i ·e) , cy per cen
the occ upan : e
: -· tag
Als o tha t-ev-ery year- it-is incr eas ing by ·
r -2006-2007 the occ upa ncy per cen tag e
for 2006 bec ome s 86%, .and .for the yea •
.
res we find tha t 1·t me ans th at a tota l
bec om es·.89· Yo. Fur ther , .from thes e figu - '
0

dh ·
num ber of 30,295 roo
_ . ms and. the .roo m rev enu.e is Rs. 15,40,oo, 000 an enc e the
_
the yea r 2004-2005 and f or the yea r
AR R is Rs. 5,008. app rox ima tely for
of roo ms bei ng 3lj 9o, and the tota l
2005-2006 thes e figu res are, tota l num ber ,Jtl!f
, ,t11l /YI'•
Self-Jnstruct10
 rJIJ"AGEM£NT-II
JfflcJl 5 676 and for
room revenue being Rs. 17 80 00 000 which means an ARR of Rs. '
"" ,,, , , , ,585 to r00...,.,
ta1'

~
UL
the year 2006-2007 these figures are, total number of rooJI\.S 32 ' the above
revenue Rs. 22,00,00,000 and ARR of Rs. 6,751. Now, based on 0,
92 10
•
assumption o .
of 31/o increase in room occupancy percentage, which means th
24 75 80,000, e
for the year 2007-2008 and the total room revenue, say, Rs ·. ' ' 29.
number of rooms sold will be 33,780 and ARR shall be approxunately Rs: 7'3 .
From the above figures, we note that while the occupancy percentage .
is
· · at a constant rate of 3 % every year, the ARR 15
mcreasmg · m· creasing from
hich
Rs. 4000 to Rs 5,008, i.e., 125.2% and further to Rs. 5,676 from Rs. 5,00S,.w . /c
60
means 101.1%, and further from Rs. 5,676 to Rs. 6,751, which me~ .l 19· :
increase and further shall increase to Rs. 7,329, which means an increase 0
108.5% in ARR.

ESTIMATING EXPENSES
In hotel industry one of the major department is Front Office an4 .most .o.f the
expenses are of direct expenses nature, which means that they ar~ in direct
proportion to the total room revenue, which means more .the revenue, _InQre _the
expenses, and less the revenue, lesser the expenses. By using the data, we-can
calculate approximately the percentage of room revenue 'in relation to each one
of the expense items, such as labour cost, bathroom items cost,· bedroom
decoration cost, bedroom linen cost, taxes on labour cost, cost involved in
reservation procedure and many other such items. Let us consider the ex~ple
of the years 2004, 2005, 2006 and 2007 for some such:expense items, say,
reservation system expenses, labour and labour related taxes, ·bathroomclinen,
bedroom linen and miscellaneous items. Let us presume that there is an increase
of 1%, 1%, ·o.s%, 1% and 2% respectively in the above mentioned items each
year and further let us suppose 'that these figures of expenses or various items
for the year 2004 are 3% for reservation system, 20% for labour ·and labour
related taxes, 3% for .bathroom linen and 3% for bedroom ijnen an~ _5% for
miscellaneous expenses of the total room revenue, say, Rs. 80,00,000 every year.
Now the figure of expenses on the above mentioned heads for the years
2005,
2006
., and 2007 are as follows: ·
Year Reservation Labour and Bathroom Bedroom
labour related linen Miscellaneous
system linen
taxes expenses expenses expenses
expenses . .
2005 4.0% 21.0% 3.5% 4.0%
7.0%
. _,. ·.·similarly-for the year 2006, these figures are as follows:
. .
: year Reservation Labour and Bathroom Bedroom
. system labour related linen Miscellaneo~
linen
taxes expenses expenses expenses
expenses
• 22.0% 4.0%
2006 5.0% 5.0%
9.0% -
'I
'l'iictio.;.I 'A,,_
-
·•111 • •viaterial