PLANNING AND EVALUATION

Most front office managers will readily admit that they rarely have all the resources they feel are necessary. Resources available to managers include people, money, time, materials, energy and equipment. All these resources are in limited supply. An important part of front office managers job involves planning how to apply these limited resources to attain the departments objective. An equally important part of front office managers job is evaluating the success of front office activities in meeting the departments objectives.

FORECASTING ROOM AVAILABILITY

The most important short-term planning performed by front office managers is forecasting the number of rooms available for sale on any future date. Room availability forecasts are used to help manage the reservations process and to guide front office staff in effective rooms management. The forecasted availability and occupancy numbers are very important to the daily operations of the hotel. Forecasting is a difficult skill to develop. The skill is acquired through experience, effective recordkeeping and accurate counting methods. Following informations can be helpful in room availability forecasting: A thorough knowledge of the hotel and its surrounding area. Occupancy data for the past several months and for the same period of the previous year. Reservation trends and a history of reservation lead times. A listing of special events scheduled in the surrounding geographic area. Business profiles of specific groups booked for the forecast dates. The number of non-guaranteed and guaranteed reservations and an estimate of the number of expected no-shows. The percentage of rooms already reserved and the cut-off date for room blocks held for the forecast dates. Competitive hotels Renovation plans in the hotel and competitive hotels in the area.

Forecasting Data
The process of forecasting room availability generally relies on historical occupancy data. To facilitate forecasting the following daily occupancy data should be collected: Number Number Number Number Number Number Number of expected of expected of expected of expected of expected of expected of expected room room room room room room room arrivals. walk-ins. stayovers. no-shows. understays. check-outs. overstays.

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These data are important to room availability forecasting since they are used in calculating various daily operating ratios that help determine the number of available rooms for sale. Percentage of Walk-Ins: The percentage of walk-ins is calculated by dividing the number of rooms occupied by walk-ins for a period by the total number of room arrivals for the same period. Percentage of Walk-Ins Number of Room Walk-Ins = ------------------------------------------------------------------------Total Number of Room Arrivals

From a planning perspective, it is always considered better to have reservations in advance than to count on walk-in. Percentage of Overstay: Overstay represent rooms occupied by guests who stay beyond originally scheduled departure dates. The percentage of overstays is calculated by dividing the number of overstay rooms for a period by the total number of expected room check-outs for the same period. Number of expected check-outs = Number of actual check-outs Under stays + overstays Number of Overstay Rooms Percentage of Overstays =--------------------------------------------------Number of Expected Check-Outs Percentage of Under stay: Under stay represents rooms occupied by guests who check-out before their scheduled departure dates. The percentage of understays is calculated by dividing the number of understay rooms for a period by the total number of expected room check-outs for the same period. Number of Under Stay Rooms Percentage of Under Stays =---------------------------------------------------Number of Expected Check-Outs Percentage of No-Show: The percentage of no-show indicates the proportion of reserved rooms that the expected guest did not arrive to occupy on the expected arrival date. Number of No-Show Rooms Percentage of Under Stays =-------------------------------------------------Number of Room Reservations

Forecast Formula
Once relevant occupancy statistics have been gathered, the number of rooms available for sale on any given date can be determined by the following formula: Number of rooms available for sale = Total no of guest rooms Number of out-of order rooms Number of room stayovers Number of room reservations + Number of room reservations x Percentage of no-shows + Number of room under stays Number of room overstays Page | 2

Number of walk-ins is not included because the number of walk-ins a hotel can accept is determined by the number of rooms available for sale. Front office planning decisions must remain flexible; they are subject to change as the front office learns of reservation cancellations and modification. It should also be noted that room availability forecasts are based on assumptions whose validity may vary on any given day.

Sample Forecast Forms

The front office may prepare several different forecasts depending on its needs. Occupancy forecast are typically developed on a monthly basis and reviewed by food and beverage and rooms division management to forecast revenues, project expenses and develop labor schedule. Ten-Day Forecast: The ten day forecast at most lodging properties is developed jointly by the front office manager and the reservations manager, possibly in conjunction with a forecast committee. A ten day forecast usually consists of: Daily forecasted occupancy figures, including room arrivals, departures, rooms sold and number of guest. The number of group commitments, with a listing of each groups name, arrival and departure dates, number of rooms reserved, number of guest and perhaps quoted room rates. A comparison of previous periods forecasted and actual room counts and occupancy percentage. To help various hotel departments plan their staffing and payroll levels for the upcoming period, the ten day forecast should be completed and distributed to all department offices by mid-week for the coming period. Three-Day Forecast: A three day forecast is an updated report that reflects a more current estimate of room availability. It details any significant changes from the ten day forecast. The three day forecast is intended to guide management in fine tuning labor schedules and adjusting room availability information.

BUDGETING FOR OPERATIONS

Budget is the money that is available to a person or an organization and a plan of how it will be spent over a period of time. Budget is a detailed estimated plan of operation for a specific future period. The most important long-term planning function performed by front office managers is budgeting front office operations. The hotels annual operations budget is a profit plan that addresses all revenue sources and expense items. Annual budgets are commonly divided into monthly plans which in turn divided into weekly plans. These budget plans become standards against which management can evaluate the actual results of operations. The primary responsibility of the front office manager in budget planning are forecasting rooms revenue and estimating related expenses. Room revenue is forecasted with input from the reservations manager while expenses are estimated with input from all department managers in the rooms division.

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Types of Budgets:
Budget may be of different kinds, based on type of expenses involved, the departments, and the flexibility of expenses. Capital Budget: These allocate the use of capital assets that life span considerably in access of one year; these are assets that are not normally used up in day to day operation. Example: furniture and fixture. Capital expenditure may include vacuum cleaners, machines. The hotel building itself also comes under capital assets. Operating Budget: Operating expenditures are those costs that are incurred in order to generate revenue in normal course of doing business. The cost of all non recycled inventory items, such as cleaning and guest supply is also operation cost. Pre Opening Budget: These budgets allocate resource for opening parties, advertising, generating of initial goodwill. Pre opening budget also include the initial cost of employee salaries, crockery, cutlery and other item. Master Budget: These represent the forecasted targets set for the whole organization and incorporate all income and expenditure estimated for the organization. Departmental Budget: Each department of the hotel forwards a budget for its estimated expenses and revenue to the financial controller. For instance there would be housekeeping budget etc. Fixed Budget: These budgets remain unchanged over a period of times and are not related to the level of revenues. Such budget includes resource allocation for advertising and administration. Flexible Budget: These budgets are predetermined expenditure based on the expected revenue and differ with different volumes of sale. Cash Budget: is the forecast of the cash position for a specific duration of time. The cash budget is prepared by the chief accountant. Sales Budget: is essentially the forecast of the sales to be achieved in budgeted period. The sales budget is generally prepared by the general manager

Forecasting Room Revenue

Historical financial information often serves as the foundation on which front office managers build rooms revenue forecast. One method of rooms revenue forecasting involves an analysis of rooms revenue from past period. Another approach to forecasting rooms revenue bases the revenue projection on past room sales and average daily room rate.
Forecasted Room Revenue = Rooms Available X Occupancy Percentage X Average Daily Rate

Estimating Recurring And Non Recurring Expenses

Recurring are usually daily operations such as depreciation expense, prepaid expenses, accounts receivable, accounts payable, etc. They are a part of normal ongoing business. However, non-recurring items are things like gains and losses, changes in accounting policies that affects income. They are not usual a part of normal ongoing business.

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Most expenses for front office operations are direct expenses in that they vary in direct proportion to rooms revenue. Historical data can be used to calculate an approximate percentage of rooms revenue that each expense item may represent. Typical rooms division expenses are payroll and related expenses; guestroom laundry; guest supplies; hotel merchandising (in-room guest directory and hotel brochures); travel agent commissions and reservation expenses and other expenses. When these costs are totaled and divided by occupied rooms, the cost per occupied room is determined. If cost continue to rise profitability will be reduced. Therefore one of the outcomes of the budget process will be to identify where costs are rising as a percentage of revenue. The management can analyze why these costs are increasing disproportionately with revenue and develop a plan to control them.

Revising Budget Plans

Departmental budget plans are commonly supported by detailed information gathered in the budget preparation process and recorded on worksheets and summary files. If no historical data are available for budget planning, other sources of information can be used to develop a budget. Many hotels refine expected result of operations and revise operations budgets as they progress through the budget year. Reforecasting is normally suggested when actual operating results start 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.

EVALUATING FRONT OFFICE OPERATIONS

Evaluating the result of front office operations is an important management function. Successful front office managers evaluate the results of department activities on a daily, monthly, quarterly and yearly basis. Following tools helps the front office manager to do successful evaluation. Daily operations report Occupancy ratios Average daily rate Average room rate per guest Revenue per available room Rooms division budget reports Operating ratios and ratio standards

Daily Operations Report

The daily operations report contains a summary of the hotels financial activities during a 24-hour period. The daily operations report provides a means of reconciling, cash, bank accounts, revenues and accounts receivable. The report also serves as a posting reference for various accounting journals and provides important data that must be input to link front and back office computer functions. The information provided by the daily operations report is not restricted to the front office manager or hotel general manager. Copies of the daily operations report are generally distributed to all department and division manager in the hotel.

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Occupancy Ratios
Occupancy ratios measure the success of the front office in selling the hotels primary product; guestrooms. The following rooms statistics must be gathered to calculate basic occupancy ratios; Number of rooms available for sale Number of rooms sold Number of guest Number of guests per room Net rooms revenue

Occupancy ratios that can be computed from these data include occupancy percentage, average daily rate, double occupancy ratio and average rate per guest. These ratios typically are calculated on a daily, weekly, monthly and yearly basis. The night auditor typically collects occupied rooms data and calculates occupancy ratios, while the front office manager analyzes the information to identify trends, patterns or problems. Occupancy Percentage Occupancy percentage indicates the proportion of rooms either sold or occupied to number of rooms available during a specific period of time. Number of Rooms Occupied Occupancy percentage = --------------------------------------------------------Number of Rooms Available Double Occupancy Ratio Double occupancy ratio is used to forecast food and beverage revenue to indicate clean linen requirements and to analyze average daily room rate. Number of rooms occupied by more than one guest Double occupancy ratio = -----------------------------------------------------------------Number of rooms occupied Average Daily Rate (ADR) Most front office managers calculate an average daily rate even though room rates with in a property vary significantly from single rooms to suites, from individual guest to groups and conventions, from weekdays and from busy to slack seasons. Total Rooms Revenue Average daily rate =------------------------------------------Total Number of Rooms Sold. Average Room Rate Per Guest (ADG) Average room rate per guest is calculated by dividing the total room revenue by total number of guest in the hotel, including children above 5 years Total Room Revenue Average rate per guest = ---------------------------------------------------------Total Number of Guests in the hotel

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