The Misunderstood Power of Capital Budgeting

Are you leveraging the power of this revenue generation tool?

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | June 03, 2018

Sustenance of businesses hinges on the important element of maintaining a consistent top line. In the hospitality industry, the saying goes: "No Top line, no Bottom Line." Top line or revenues as they are generically called are the lifeline of businesses. Whatever products you offer to your customers and the value proposition you bring to the table will influence if not exactly guarantee your revenue performance.

When revenues start to drop, the bottom line performance suffers significantly too. Owners while always obsessing about the bottom line are keen that revenue performance is consistently strong. After all, the Top line is the foundation on which bottom line is built.

Rooms Vs Food & Beverage

In the industry, rooms and food and beverage produce close to 90% of hotel revenues. Between rooms and food and beverage themselves, room revenues are generally between 2.5 to 3 times food and beverage revenues. This is built on the foundation of an Average Daily Rate in the Rooms department which is higher many times over than its counterpart, Average Check in the Food and Beverage department. Moreover, there is another important difference between the rooms and food and beverage revenues. Rooms revenues are generated with hotel long term assets while food and beverage revenues are generated using current assets.

Operations Budgeting

One of the key planning tools that a hotel business relies on is the budget. More specifically, the Operations Budgeting exercise is an annual one laying down the broad marketing and financial plan elements of the hotel. Operations Budgeting specifically forms the basis for estimation of revenues and expenses and the resultant profitability.

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Coming up in April 2019...

Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.