MANAGERIAL ACCOUNTING FOR PLANNING AND CONTROL

CASE STUDY:

Submitted by:
Group 4
Bendecio, Arvin
Cordova, Alexander Jr.
Diaz, Jhucyl
Escario, Mary Grace
Gellera, Jazztine
Lantin, Pamela Grace
Trabajador, Lloyd
BRIEF BACKGROUND
Maverick Lodging belongs to a hotel management company that caters daily operational services
to Marriott franchised hotels. Its main target was to achieve the top service provider for all of its
customers by developing and improving the hotel's brand image, considering strategies to
increase the satisfaction ratings of customers, reducing the employee turnover, enhancing the
effectiveness of their operations, and increasing the hotel's financial throughput.
To achieve this goal, the company has developed a balanced scorecard that monitors and
evaluates the performance of each hotel that it operates. In order to determine the company's
effectiveness, they will conduct evaluation like what they had in the previous years. Hence, there
are prevalent existence of reservations regarding the balanced of scorecard's effectiveness in
judging the realities since the evaluations determine the particular hotel Manager's bonus
incentives.
Maverick Lodging hopes to achieve a 100 percent retention of existing franchises and their 65
hotels with 225 million dollars total revenue by the year 2001. Aside from this, the company's
objective is to exceed the average brand yield and have higher revenues than local competitors.
The balanced scorecard determines the areas that Maverick Lodging needs to improve and do to
achieve an advantage against to its competitors. When it comes to learning and growth, Maverick
Lodging hopes to retain the non management employees at less than a 60 percent turnover rate
through diverse services using the balanced scorecard, the company will have value-added
proposition.
STATEMENT OF THE PROBLEM
How effective and efficient is the balanced scorecard of Maverick Lodging prepared by
Cindy Baum. Effective in terms of the implementation of balanced scorecard is successful
considering Maverick's company objectives and strategy. And efficient in terms of management
control and performance management system.
It also specifies the following problems:
• Was 1999 was a good year for the company, as it represents the first full year of
results using the balanced scorecard approach
• What is the company’s value-added proposition, it’s competitive advantage
• Is the flowthrough flexible budget a useful management tool
• Is there any way to improve the balanced scorecard to make it more aligned with the
Mavericks’s corporate strategy and objectives

AREAS OF CONSIDERATION

1. The Balanced Scorecard

• The balanced scorecard is a management report of strategy performance management

tool. It has four perspectives:
1. Financial
2. Customer
3. Internal Process
4. Learning and Growth
 • Maverick Lodging believed that adopting a balanced scorecard framework might help
differentiate its services especially that third-party owners had many choices among
hotel-management companies including the Marriott Corporation.

2. Evaluation if 1999 was a good year

• This is the first year that Maverick Lodging implemented the balanced scorecard. The
scorecard provided both positive and negative results and goals the company needed
to achieve. The scorecard could determine overall performance of the organization.

3. Determination of Maverick’s Lodging Core Value-Added Proposition

• The balanced scorecard identifies what Maverick Lodging needs to do in order to

achieve a competitive advantage. The balanced scorecard can be able to identify to
address Hotel’s individual business objectives using the four perspective.
The system allows the company to get an in-depth perspective on customers’ issues,
needs, and wants. The balanced scorecard system helps fix errors throughout their
hotels and achieve the objectives set by the owners’. In addition, it aligns Maverick’s
business objectives with financial and non-financial goals.

4. The Flowthrough Budget

• The flowthrough Flexible Budget is a useful management tool as it helps improving

business performance. The tool consisted Maverick Lodging hopes to achieve budget
targets, financial management of hotel brands, exceed brand average profitability, and
provide high return on investments with the corporate objectives and it also achieves
the financial objectives. The flexible budget can achieve target budget and generate
high profit. The top management of the Maverick Lodging set the original budget at
first. After one fiscal year of operating, the management gets the actual data of
revenue and expense. The management would then make reforecast target, which is
the flexible budget, to measure the performance of each hotel. For the variable costs
and the variable revenues, the company uses drivers and actual quantity to determine
the value of flexible budget. However, the fixed elements and the uncontrollable
expenses stay the same as original budget.

5. Balanced Scorecard of Maverick Lodging

• The balanced scorecard of Maverick Lodging should be assessed or evaluated. It

should be determined if Maverick Lodging was able to accomplish its primary
objective of aligning the company’s strategy, structure, measurements and incetnives.
If it was not able to its objectives and goals, there could be necessary modifications to
align it with its goals and objectives.
ALTERNATIVE COURSES OF ACTION

1. Observation on performance of Maverick Lodging

• Financial Performance: The top line yield has increased from 1998 to 1999 and is
above the brand average yield in Courtyard, Fairfield and Residence Inn brands. The
operating profit has increased from 1998 to 1999 and are above the brand averages in
Courtyard, Fairfield and Residence Inn brands.
• Customer Perspective: Guest satisfaction decreased from 1998 to 1999, probably as
a result of the emphasis on financial performance. Guest satisfaction is a leading
indicator, if the guests are unsatisfied, revenue will drop in future years, resulting to
lower profitability. This shows the cause and effect relationship of the balanced score
card. And poor performance in one measure may lead to severe impacts on the other
balances scorecard metrics.
• Internal Business Perspective: Audit score has significantly increased from 1998 to
1999, which is a positive indication of well-managed internal process.
• Learning and Growth Perspective: From 1998 to 1999, there was a decrease in
associate turnover. Same with the guest satisfaction, employee turnover is a lead
indicator for future success of Maverick and should be improved by increasing
employee satisfaction.
Year over Year
Scorecard Measure 1998 1999 Change
Financial performance: Revenue performance - Top Line Yield
Growth in RevPAR 8.94% 6.56% Lower
Courtyard yield vs Average 116.7% vs 121.1% vs
Courtyard 113.3% 116.5% Higher
Fairfield yield vs Average 112.6% vs
Fairfield 111.9% 115.1% vs 111% Higher
Residence Inn yield vs Average 122.7% vs
Residence Inn 123.5% 127 vs 124.3% Higher

Financial performance: Profitability performance - Operating Profit compared to Flexible

Budget
Courtyard yield vs Average
Courtyard 52.2% vs 54.3% 54.1% vs 54% Higher
Fairfield yield vs Average
Fairfield 54.9% vs 48.9% 54.6% vs 45.8% Higher
Residence Inn yield vs Average
Residence Inn 57% vs 54.3% 56.8% vs 53.6% Higher

Customer measure - Guest Satisfaction

Courtyard yield Top 30% Top 40% Lower
Fairfield yield Top 40% Top 50% Lower
Residence Inn yield Top 20% Top 30% Lower

Internal business process measure - Process Audit performance

Internal -process audit score 88.30% 95.30% Higher
 Learning and growth measure - Employee Turnover
Associates’ turnover 69.90% 61.30% Lower
Table 1: 1998 and 1999 summary of scorecard results using data in Exhibit 7

Overall, 1999 was a good year for the company and for the scorecard, but there were
improvements that should be made both to the company and to the scorecard. For
financial performance, according to Exhibit 7, the Maverick Courtyard has 3.77% growth
rate, Maverick Fairfield Inn has 2.22% growth rate and Maverick Residence Inn has 3.5%
growth rate. For flow-through flexible budget, both Maverick Courtyard and Maverick
Residence Inn have good score while only Maverick Fairfield has unexpected score. As a
result, the financial performance is generally good for the company. However,
nonfinancial figures indicate the company’s customer service quality is declining.
According to guest-satisfaction score in Exhibit 7, all three hotels’ scores are lower than
market average scores. The company has higher comprehensive audit performance than
last year’s and employee turnover is decreasing. Maverick lodging also shows 6.56%
growth in RevPAR and 1.35% growth in yield. Maverick Courtyard shows an increasing
profitability performance from 1997 to 1999 while both Maverick Fairfield and Maverick
Residence recorded a decline in 1999.

2. Maverick’s Lodging Core Value-Added Proposition

Added proposition as a hotel management company. Operating as hotel operator,

Maverick’s direct customer is the third-party hotel owner who has a franchise agreement
with hotel franchisor, in this case, the Marriott hotel group. This means that not only does
Maverick needs to align its goal and objectives with its direct client, but rather it must
satisfy Marriott group as well.

Maverick possesses four key core value propositions:

1. The utmost important value proposition as the ability to comply is what underlying
the rule of standard set by Marriott’s franchising system.
2. Maverick aims to achieve superior financial return on investment at around 15%.
3. The company proposes to successfully retain its management employees to be well
below 20% while at the same time laying in the top 20% of brand in guest-
satisfaction score. These two key measurements are closely correlated as staff’s
performance in delivering services would directly influence level of customer’s
overall satisfaction. Thus, Maverick should ensure that the turnover of associate
was minimized, as hotels with lower turnover generally perform better.
4. Maverick offers values by developing and implementing a balanced scorecard to
differentiate its services from its other forerunners in the hotel industry. However,
the question still remains of what the competitive advantages Maverick are trying
to build up. Maverick felt that scorecard is the key to the competitive advantage.
Scorecard offers many valuable benefits which include alignment of individual
hotels’ business objectives with financial and non-financial performance metrics
which are all linked in achieving the company’s objectives. Furthermore, the
scorecard also greatly contributes to the achievement and optimization of hotel
owners’ objective of growth, profit, and physical maintenance. Central to all these
 is Maverick’s strategic intent that is 100% retention of existing franchisees and
boost Maverick’s hotel management portfolio. This is all in line with 2001 goal of
managing 65 properties with revenue of 225 million dollars.

Identified matrix used to address Hotel’s individual business objectives which are to
(1) Exceed brand average yield compared to local competitors and comparably
branded Marriott- owned hotel,
(2) Grow Revenue-PAR at a specified rate greater than local competitors,
(3) Exceed the profitability levels of Marriott-branded hotels owned and managed
by Marriott,
(4) Be in the top 20% of brand in guest-satisfaction scores and lastly,
(5) Retain non-management employees by achieving less than 60% turnover.

As can be observed this matrix are centered very strongly around competition whereby
Maverick compares and benchmarks itself and its performance against another player
operating in this very similar landscape. Whereas the scorecards system and its related
bonus plan is appropriate to only general managers. Corporate executives and regional
manager are currently excluded. Another drawback is that no customer growth rates are
being measured.

Taking another turn and look at the scorecard from Maverick’s Corporate business
perspective, we can see that the balanced scorecard for Maverick business objectives is
inadequate mainly because the scorecard does not clearly attribute major incentive
achievement directly related to Maverick’s goals:
(1) 15% annual compounded growth in managed revenue
(2) 300 Million in manages by 2004
(3) Achieve annual budgets
(4) 15% ROI to owners or franchisees
(5) Retain management employees by achieving less than 20% turnover
(6) Retain 100% of owners. Furthermore, the bonus plan also has multiple
drawbacks including the limited implementation only to the hotel general
manager level, the immediate implementation without any trials and the highly
complicated and hard to understand nature.

Thus in depth understanding is required since the plan is dependent on the color ranking
and points assigned which can cause inaccuracy when addressed improperly and the
calculation of the weighted average score and final performance score is also unclear,
worsening the evaluation process even further.

3. The flowthrough Flexible Budget

The flowthrough Flexible Budget is a useful management tool as it helps improving

business performance.
The tool is consistent with the corporate objectives, and
(1) supported Maverick’s strategy and structure,
(2) could be understood and used by the hotel managers, and
(3) could be controlled or reasonably influenced by the hotel managers

It also achieves the financial objectives of

 (1) achieve the budget target
(2) obtain superior financial management of the hotel
(3) outperform brand average profitability
(4) deliver high investment returns to owners.

The company can acquire controllable profits and house profits for both actual and
flexible budgets. Based on the results, top management calculates the percentages of
actual controllable profit divided by reforecast controllable profit. According to Exhibit
3, the company firstly determines whether the performance is low, base or high by
viewing house profit percentage. House profit percentage that is lower than 90%
indicates low performance, 90%-105% indicates basic performance and higher than
105% indicates high performance.
After determine level of performance, the company uses the flexible budget controllable
profit percentages to determine the color rankings of managers.

4. Modification on Maverick’s current balanced scorecard

The scorecard does not align with the company’s overall objectives. As a result, there
should modification to it:
Firstly, the company should simplify the scorecards procedure to help managers
understand and increase acceptance. For example, the company should delete the color
and points system, and add some straightforward methods to determine the managers’
performances.
Secondly, the company should eliminate the uncontrollable factors in scorecards. For
example, budget comparison should be deleted because bottom level managers have no
right to determine the original budgets. Another way to solve this problem is to let bottom
level managers plan for their own budgets so that they have the power to determine the
original budget. In addition, since the customer survey is complicated and time-
consuming for customer to fill in, many customers would not complete the survey. As a
result, the company should consider simplifying the guest-satisfaction survey in
scorecards to attract more attendance for the survey.
The third alternative the company can take to change the scorecards is to let all level
managers discuss the properties of the scorecards and implement the scorecards
measurements in all level managers. Since the bottom level managers cannot determine
the components of the scorecards, the acceptance and implementation process would be
difficult. The scorecards process would be fairer if all level managements apply the same
measurements.
RECOMMENDATION

Based on 1999, the balanced of scorecard of Maverick Lodging was a good

management control and performance management system. However, we believe that
there should be modifications to it. Financially they perform well in 1999 but non-
financial measure needs to be improved especially in decline of guest / customer
satisfaction. Guest or customer satisfaction can be obtained by reduction of employee
turnover. As per Richard Branson, “Clients do not come first. Employees come first. If
you take care of your employees, they will take care of the clients.”
Furthermore, the current balanced scorecard should take into consideration and
must be applicable to management and non-management employees. Lastly, the balanced
scorecard should be measures per hotel basis since hotels have different operations or
capacities as well as its demographics.