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Mr. Lund

Revenue Management

Using EFTE's - Equivalent Full Time Employees

By David Lund, Hospitality & Leadership Expert, The Hotel Financial Coach

If You Can't Measure It, You Can't Improve It. Management thinker Peter Drucker is often quoted as saying that "you can't manage what you can't measure." Drucker means that you can't know whether or not you are successful unless success is defined and tracked.

In the hotel business payroll is the number one cost. STR recently reported that labor made up 50% of revenues for a sample of over 4,000 hotels of all types and sizes. This should not be even a little bit of a surprise to anyone. Many hotels are well north of the 50% mark. We have all become accustomed to serious REVPAR growth year over year which has taken the bight out of wage and expense increases. But what happens when the REVPAR bubble bursts. We all know it's not a matter of "if" it bursts it's when will it burst. When it does burst not only will REVPAR stop growing there is a 90% chance it's going to go backwards. Like it always has in past cycles. When it happens, it will be devastating to many owners. Overnight your ability to drive revenues will not only stop growing, it will start to shrink. So, what can you do about this inevitability?

The most impactful move you can make in your hotel is to have both hands on the "payroll" steering wheel. I know by what I read that our industry is awestruck by the potential impact of revenue management. And, rightfully so, with the right strategy, people and technology the revman in a growing market can have a huge win. Like the man said, a full tide floats all boats. But what happens when the pressure in the pipe drops and demand evaporates. What cards do we play then?

Hopefully you don't wait for the party to end before you plan and execute your strategy. Having an efficient and reliable way to measure payroll is critical in any business. In hotels, the impact of payroll is amplified considerably and the need to have something you can measure is the key. Without these payroll tools your lost. May I introduce the secret weapon and the star of the show? EFTE's!

Abbreviations.com defines the acronym EFTE as "Equivalent Full Time Employee". I know from my experience that most hotels do not use EFTE's on their daily reporting and the use of EFTE's on their financial statements is not prevalent. The creation and use of this powerful statistic is not difficult. All the information you need, you already have, it's all at your fingertips. You just need to organize it and let it tell you what's going on inside your hotel. Measuring the dollars of payroll in your hotel is very important but understanding productivity is the most powerful tool you have. Getting to understand and measure productivity leads to the comparison of like data, this is where the EFTE is so powerful, it's like a power tool! Many industries use this statistic, and therefore it's not unique to the hotel world.

First off let's define the use of the EFTE. EFTE's measure the number of "equivalent" full time employees. This is where most people get hung up. In the hotel business; we have full time employees, part time employees, salaried employees, hourly employees, unionized employees and even contracted labor. What the EFTE calculation lets you see is what's the total of these pieces of our hotel labor by area, department and in total. It also allows you to see the same information for a day, month or year in a comparable way. This is very useful and once you get started with EFTE's you're going to be hooked.

Second, lets define the calculation. This is the second most common place where people get hung up. If you can manage a little multiplication and division then this is very straight forward. Remember the first https://www.hospitalitynet.org/opinion/4085357.html#iwork in the acronym is "equivalent". To calculate one EFTE we need to start with the annual calculation. Once we understand the annual calculation we can reduce the same calculation for any month in the year, a week or and a single day. Now, don't go south on me with the following math vomit. Once you run this through your internal bio computer you will get it. I did and I as one good friend like to remind me, I am not always the sharpest knife in the drawer.

For the basis of calculating an efte we use 40 hours as the "equivalent" work week, 5 days * 8 hours per day. In hospitality, we all know most managers and leaders work more than 40 hours so don't let this part confuse you. The second part is the number of weeks in a year. (365/7 = 52.14) Leap year we use (366/7=52.29). We then take our 40 hours and multiply it by our annual 52.14 which equals 2086. Which is simply the number of hours a person working 5 days a week at 8 hours would work in an entire year. Note here we don't factor any holidays or vacation. We just want to know the number of hours one would work in an entire year.

From this magic number of 2086 we can figure out the daily and monthly EFTE values.

For the daily its 2086/365 = 5.715. For a month, it's the number of days in the month times 5.715. A month with 31 days is 31 * 5.715 = 177.1 A month with 30 days is 30 * 5.715 = 171.5 A month with 28 days is 28 * 5.715 = 160.0

Now we know the basis for calculating the Equivalent Full Time Employee statistic for a day, any month and a year. Let's put it to work for your hotel.

There are two key areas in your hotel where you will want to see EFTE's in your reporting. The two areas are daily labor/productivity reports and your monthly financial statements. For the daily reporting, we only need to get the report from our time clock or if we have a manual system the departmental hours worked summary is what we need. Taking the daily hours worked by department and major classification and dividing this number by the daily divisor of 5.715. The second part of the daily EFTE measurement is to divide the month-to-date hours by the month-to-date divisor.

Daily hours worked in housekeeping in this sample is 185/5.715 = 32.4 daily EFTE's

Month-to-date hours worked in housekeeping as of the 18th of the month 3725/ (18*5.715) = 36.2 month-to-date EFTE's We can use this statistic for any payroll calcification, big or small. From the number of EFTE's in the room attendant classification all the way to the total hotel EFTE's it's all the same math. We will also want to apply this same view to the forecast, budget and last year values, especially for the month-to-date results.

With the monthly financial statements, annual budgets and monthly forecasts we also want to incorporate EFTE's. The report writer in your system needs to be messed with here and you will need the right person to go under the hood and write your financial formula. In addition, you will need to incorporate hours reporting on your monthly closing process. Create general ledger accounts to match each payroll classification you report on your financials. Run a monthly report from your time clock or post each pay period's hours and don't forget to accrue the stub period and reverse last months. Once you get into the swing of booking the hours on your financials its business as usual and now you have EFTE's on your financial statements.

Imagine how much more insight you can gain on your business with EFTE reporting. With one glance, you can see the total EFTE's for budget 2018 compared to the latest forecast for 2017. Look no further now we can see the A&G EFTE count, the food preparation EFTE count, the EFTE count for the actual, budget, forecast and last year laid out side by side. Things are now much, much clearer in your financial reporting thanks to the super tool EFTE's.

EFTE use and reporting is going to change your world. Don't let anyone tell you it's not possible or practical. Your prosperity depends on good financial information and organizing what you already have into highly intelligent reporting is just around the corner.

David Lund is The Hotel Financial Coach, an international hospitality financial leadership expert. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with an international brand for over 30 years. Mr. Lund has reviewed thousands of budgets, forecasts, month-end reports and commentaries. He has managed hotels with combined incomes of hundreds of millions and assets of more than a billion dollars. He has combined his hotel business knowledge and communication skills to create strong financial teams and break with accounting stereotypes. Mr. Lund believes that all hospitality leaders have financial skills and talents and he works to see these talents come alive. Mr. Lund can be contacted at 949-791-2739 or david@hotelfinancialcoach.com Please visit http://hotelfinancialcoach.com/freecall/ for more information. Extended Bio...

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