How to Maximize Labor Productivity
By Paul West Principal & CEO , priZem Hospitality Solutions | May 12, 2010
For the hospitality industry, the current economic situation will not change as quickly as one would hope. In fact, it could be more necessary than ever to continue adjusting expenses to account for the continued change in revenues. More importantly in an industry where labor is the biggest operating expense, the challenges are still greater than in other industries as productivity is tied more conspicuously to quality of service and consequently, to overall guest satisfaction.
Certainly, while operators continue to adjust rates and struggle with business, one thing that remains is that the labor expense is still the single largest operating expense for hotels and hotel companies. Consequently, with changes in one there should be reciprocally appropriate changes in the other. More simply stated, companies simply cannot continue to operate with the same labor expenses for what should be a longer than expected time period of decreased revenues.
On the other hand, hotels or hotel companies could choose to remove positions as they think appropriate without proper study and analysis; however, then they could then be opening themselves up to more extreme effects on the guest experience. If the guest experience is disrupted, then guest satisfaction will be lowered and hotels or hotel companies will have initiated the one thing that they absolutely cannot afford to do - and that is to jeopardize the only revenues or potential revenues that may be available.
By now it should be more obvious that reducing labor costs is not as simple as merely reducing staff counts by a given percentage in order to meet financial expectations. Additionally, cutting the wrong staff in the wrong departments may also result in difficulties that are realized farther down the line. Either approach could impact guest service by placing additional strain on staff or effecting business operations in the future such as by creating a back log in guest comment attention or other necessary follow up on the administrative side.
At a time when watching expenses is crucial because revenues have gone flat, no business can afford to mishandle what revenues are available. Therefore, it is imperative for hotel and company managers to project labor properly and frequently based on productivity indicators such as cost per occupied room, labor cost percentage, cost per guest, hours per occupied room, cost per cover, number of hours/minutes to clean a room, number hours/minutes to serve a room service order, cost per treatment, cost per round of golf, etc. More importantly, these measurements must be made available on a daily basis, since doing so only weekly or monthly may be too late to correct the problem or to avoid the expense. Equally important is that these measurements should be done at the job level and categorized by fixed and variable position - not just by department, to ensure that data is more meaningful.
To understand how much labor is needed to operate any hotel, managers must be able to determine how much work each fixed and variable employee can perform. More specifically, too few employees scheduled on any given day may result in service that is below expectations, while too many employees scheduled will result in higher labor expense for the day and consequently, a reduction in profits. The solution to such a challenge is to know how many employees are required given the estimated number of guests anticipated on any given day. To determine this number of employees, one must have a clear idea of the productivity of each of its employees.