The Link Between What You Earn and What You Keep

By Joshua Miller Principal, Niche Advisors | May 19, 2010

Hospitality management is very challenging. You have to find a way to simultaneously offer fantastic service to your guests, grow and develop your team, and keep your facility looking great and functioning well. More importantly, you have to achieve all of these goals while generating profit for your ownership. Sometimes these efforts collide and difficult decisions need to be made. All seasoned managers understand this balance and get skilled at strategically utilizing their resources to get the job done. With a talented team and a lot of hard work, successful properties are able to generate profits while simultaneously meeting the needs of their guests, associates and facilities.

Imagine the shock when the hotel seems to have accomplished its goals, yet the financial performance is not where it should be. Most hoteliers' first instinct is to look at expenses and tighten the belt. Detailed reports of budget versus actual payroll are reviewed with each department accountable for any variances. Overtime is micro-managed. Large operating expenses are monitored closely if not deferred. While this effort may bring financial performance in line, it is often counterproductive to providing the service, employee development and facility upkeep mentioned above.

One area that is often overlooked is revenue control. "Controlling" revenue refers to implementing procedures designed to minimize loss which occurs from error and theft. Many management teams are surprised to find that the revenue earned by the hotel does not necessarily match what it keeps. In order to maintain complete revenue "capture," accountability procedures need to be incorporated into each daily operating process. When most hoteliers think of revenue control procedures, or worse yet, "internal audit" procedures, they conjure pictures of extra work, someone looking over their shoulder, paranoia, etc. Many line managers look at these processes as "annoying or too much work and hope that the accounting team will stay in their offices out of the way of what really needs to get done around here." Overcoming this attitude can be a challenge, yet we find over and over again that the more detail is put into monitoring the flow of revenue, the more makes it to the bottom line. Think back to budget season when you were struggling to find that extra half point your ownership was looking for and imagine if a little extra effort bumped your EBIDTA by 5% or more. Revenue control efforts always have a quick return on investment and with the right attitude from the operating team, can be implemented with no sacrifice to service.

Most discussions surrounding control procedures focus on theft prevention. In a hotel, there are many opportunities for fraudulent guests and employees. Preventing these activities is crucial, yet only part of the control process. We find that more money is lost in typical properties through error rather than theft. Mistakes in the posting process which go unchecked and having multiple people involved in income-generating transactions are the two biggest offenders. Let's consider some examples of error and theft control issues and how they can be resolved:

Rooms Division:

Error Scenarios: Most hotels have a nightly process by which rates are verified for accuracy. Depending on your PMS system, you may refer to this as the "bucket check," rate variance," "potential room revenue check," etc. This process is designed to prevent data entry mistakes (or fraudulent rate adjustments) which result in improper room rates. The inspection is usually completed by the evening front desk team and is often delegated to a front desk agent. Coincidentally, most front desk agent scheduling is done so that the newest associates work at night. We have seen numerous scenarios where the agent was not aware or did not understand wholesale or group rates that resulted in major losses. Therefore, we always recommend that this task be completed by your evening manager or supervisor.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.