The Real-time Money Continuum
By Shaun Burchard President, Meridian Hospitality Group, Inc. | July 23, 2010
Every day, I speak with investment partners or colleagues as to how to best navigate the current environment. Consistently, the message is to aggressively drive the top line and with equal fervor protect the bottom line and flow of revenue growth or erosion, maintain as much ADR as possible in your particular circumstance and identify ways to save without negatively impacting the guest experience. Spend smart, save smarter. Frequently, the follow up is "I've done the obvious things, now what?" This is a great opportunity to reinforce how real-time data and time management dramatically impact the profit and loss statement.
We all understand the cliche that "time is money." What is surprising is that many in our industry continue to rely on outdated techniques and technologies to influence / manage costs. The cliche should be updated to "real-time is real money" for all business, including (if not especially) our own.
Let's begin by establishing that all costs are measured as a percentage of revenue – not in dollars spent. In the current environment where revenues are anything but reliable, the only metric that can be used to determine effective vs. ineffective cost containment is the budgeted percentage of revenue. This metric clearly demonstrates the ability to adjust in real-time to the revenues you have to work with – whether they exceed or fall short of your budget / forecast aspirations. Lastly, remember that your fixed costs demand that you manage your variable cost percentages as prudently as possible, as you have no control over your established fixed costs in dollars (which will force a higher than anticipated percentage 100% of the time in a revenue shortfall scenario), outside of eliminating them altogether.
Let's start with the easy one – payroll – where a couple of simple daily routines can produce profound results at your bottom line. Most of us have been taught that payroll is our largest controllable variable expense at some point. Surprisingly, some still maintain extremely costly policies and practices with huge downside potential.
For example - we partnered with a company still using manual time clocks. This allowed for payroll theft, consumed valuable time in having time cards calculated (miscalculated?) and exposed this development company to hundreds of thousands of dollars in annual waste across their portfolio. They also had a "punch in / punch out grace period" that rounded to the nearest quarter hour. At 500 employees at $8.00 an hour, this is an exposure of nearly $800,000 annually in payroll cost with absolutely zero return.
The solution? Biometric time clocks and automated payroll systems that record and pay to the actual minute. Can this be mismanaged? Of course, but then it becomes a discipline issue managed in the same amount of time or less than was previously spent calculating manual payroll cards. Effective payroll management with less productivity loss results in doubling down on the end result savings so that everyone wins.