Mr. West

Finance & Investment

Daily Hospitality Business Execution for 2011

By Paul West, Principal & CEO , priZem Hospitality Solutions

Now that budget season has concluded for most operations and a plan has been made for the 2011 year, there is still much to consider for those who wish to prosper in this otherwise rather fragile economy. Although perhaps in some cases, it may be more that businesses would just be happy to maintain some sort of status quo until the light at the end of the tunnel can be seen. Naturally, it always has been necessary to aim for additional revenues from the same market segments, perhaps revenues even from some new segments or revenues from additional sources; that is, if your business was fortunate enough to renovate or upgrade services in one way or another.

In any case, as it is always desirable to secure more revenues overall, as well there should also be an alternate focus on turning any revenues into profits. Consequently, the only way to ensure that any regular revenues or newly found revenues stay within the business is to monitor both revenues and expenses on a daily basis with a keen eye towards limiting expenses – particularly as always with an eye on that biggest operating expense that is payroll. So, having created a blueprint for the annual business in the budget, it is now important to work to stay in sync with that defined budget plan as well as the ongoing forecast on a day by day basis.

What then should a property expect in daily operations information that can be reviewed in such a useful report? What is the information that Hotel Managers at all levels should utilize to make proper daily business decisions that are in line with the more detailed established budget plan for each week, month and remainder of the year?

The first requirement of the proper daily report is the obvious income journal information gathered from the main property systems that comprise the axis upon which the benchmarks will be made. That is information such as rooms available, rooms occupied, room revenue, per outlet covers by meal period, per outlet average check by meal period, per outlet revenue by meal period and other similar, related revenues and statistics for golf, spa, casino, etc.

It will be these very revenues and statistics which when associated in ratios to one another, will then combine to create the performance indicators that managers will use on a daily basis to compare against last year, forecast and most importantly, budget data. These ratios such as average room rate, cost per occupied room, cost per cover, cost per treatment, etc., can then be reviewed daily by managers to analyze current situations so as to make more timely business decisions for their respective departments and/or entire operation.

The blueprint for all information is the annual budget which is in essence the business plan that is designed with revenues, expenses, labor, cost of sales and benefits set in stone as the ultimate goals to meet, exceed or remain below as appropriate. As the budget cannot be changed once created, it is a critical component for the management of operations.

The moving target which can be tweaked accordingly to reflect unexpected variations in the market or to increase the short term target level is the forecast. The forecasting components and process are identical to that of the budget but are adjustable so as to increase/decrease demands accordingly to keep management on target with the budget over the long term.

The ongoing accumulation of daily actual data is the reality of the operation which does have its basis in comparison against actual data year to date or month to date or overall last year. In any case, data is particularly most useful when measured against production such as revenues or expenses such as labor or cost of sales. Further measurements of a statistical nature can help to break down restaurant information by meal period against number of people served or covers, so as to create a greater understanding of labor productivity which can then lead to proper advance scheduling to meet the needs of a business while also keeping labor costs at a minimum where possible.

It is however when all the above information is gathered and calculated on a daily basis, that it can be interpreted immediately by departmental and general managers in a more timely fashion so as to avoid a bigger problem before it may be too late. For example, the fact that additional labor was required at the front desk may in fact be based on the higher volume of arrivals and departures for a particular day. The same can be said for restaurant, spa, golf or casino operations where cost information should be monitored based on volume so as to create a clearer and more accurate picture of the business operation.

Most importantly, management should avoid the false sense of security that comes with relishing only in revenues since revenues are not really a true indication of a sound business operation. On the contrary, there are many businesses which bring in a tremendous amount of volume and consequently revenues; but still manage to show little or no profit. This is partly a by-product of basing business only on the fixed expenses and not monitoring what can be often, the bigger variable expenses such as labor. Furthermore, such out of control labor expenses cannot be taken back if not handled in advance, as one can certainly do nothing about the pay checks that have already been distributed to employees. It is therefore of the utmost importance to review the trends effecting variable expenses such as labor on a daily basis to avoid the bigger problem at the end of the pay cycle when it can no longer be rectified.

So, when reviewing an operations report on a daily basis, it may appear things are better with additional market revenue streams or newly added sources of other revenues to the operation; however, if the expenses associated with those changes are not monitored and managed regularly and with a keen eye, they can leave the business in the same place it was - or in some cases maybe even more in the red.

Consequently, management at all levels should be trained to review their daily operations reports with the approach of handling their departments or outlets as if they were individual businesses standing alone. Demanding that your management team keep track with constant vigilance is the best way to empower those managers while still holding them accountable for the daily result of revenues and expenses based on operational volume. This daily accountability will help drive the operation to stay on a course that is on par with the ultimate year end goal.

Having committed to this daily vigilance, it is then that a business can place itself in the more strategic position of holding expenses at bay to maintain the highest level of profitability possible. Once it is accepted also that a hospitality business may only be as good as its individual components, can the holes be plugged to prevent money from leaking out; thereby ensuring that it is on track with the bigger blueprint that is the annual budget.

In summary, it is important for an operation to review its revenue, expense, the cost of sales, benefits and consequently profit/loss results on a daily basis. It is important to evaluate results based on volume and production as compared to prior year, year to date, forecast and budget data. In essence, the suggestions above are seemingly rather simple and may appear to be obvious ideas to achieve positive business results; however, it also is clear that the call to action is still necessary since so many businesses of all sizes, markets, etc. continue to struggle even in better economic times.

Paul West is Principal and CEO of priZem Hospitality Solutions, a provider of hospitality corporate and property financial solutions that cost effectively reduce the budget/forecast preparation cycle; facilitate the daily labor/revenue preparation and reporting process; increase overall operational data accuracy and allow for faster corporate and departmental report distribution. More information can be found at www.prizem.com Mr. West can be contacted at 646-213-0067 or pwest@prizem.com Extended Bio...

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