Front Office Management and Budgeting

8/12/2019 Front Office Management and Budgeting

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Front Office BudgetingThe most important long-termplanning function

FOM is responsible for:

1. Forecasting Rooms Revenue

Use historical trend data

2. Estimating ExpensesVary directly with rooms revenue

Payroll, laundry & supplies


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Forecasting Rooms Revenue

Example100 Room Hotel

100 x 365 days = 36,500 Rooms Available

75% Occupancy Percentage

.75

$50 Average Daily Rate

36,500 x .75 x $50 = $1,368,750


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Room Forecasting

Ten-Day ForecastDone by FOM and Reservations Manager

House CountExpected number of guests in the hotel

Divided into group and non-group

Three-Day ForecastUpdated with current information

Identifies changes in staffing needs


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Forecasting Room AvailabilityThe most important short-termplanning function

Hotel Occupancy HistoryThe past few months and last year at this time

Reservation TrendsHow far in advance are reservations being made?

Scheduled EventsCity-wide conventions; sporting events, etc.

Group ProfilesPickup history


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Forecasting DataNo-shows Expected guests who did not arrive.

Walk-ins Guests without reservations.

Overstays Guests who stay beyond their departure date.

Understays Guests who check out before departure date.


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Percentage Of No-showsNumber of Room No-Shows

Number of Room Reservations

Purpose:Helps front office managers decide

when (and if) to sell rooms to walk-in.


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Percentage Of Walk-insNumber of Room Walk-Ins

Total Number of Room Arrivals

Purpose: Helps front office managers know

how many walk-ins to expect.


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Percentage Of Overstays

Number of Overstay Rooms

Number of Expected Check-Outs

Purpose:

Alerts front office managers to potentialproblems when rooms have beenreserved for arriving guests.


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Percentage Of Understays

Number of Understay Rooms

Number of Expected Check-Outs

Purpose:

Alerts front office manager to additionalroom availability.

20%of hotels charge understay guests


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Rooms Availability FormulaTotal number of guestrooms

- Out of order rooms

- Stayovers- Reservations

+ Reservations x no-show percentage

+ Understays- Overstays

Number of Rooms Available for Sale


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Rooms Availability Formula

Example150 Guestrooms

- 5 Out of Order

- 45 Stayovers- 50 Reservations

+ 10% No-show

+ 5 Understays

- 20 Overstays

40 Rooms Available for Sale


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Establishing Room RatesMarketing Positioning Statement

Room rates reflect service expectations to the

hotels target markets.

1. Market Condition Approach

2. Rule-of-thumb Approach

3. Hubbart Formula Approach


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1. Market Condition Approach Common sense approach.

Often used, but has many problems.

Base room rates on your competitions rates.

Doesnt take into account new properties andconstruction costs.

Allows the local market to determine the rate


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2. Rule-of-thumb Approach Sets the minimum average room rate at $1

for each $1,000of construction & furnishingcosts per room.

Assumes 70 % occupancy

$125,000 in construction and furnishings

- $125 room rate

Doesnt take inflation into account

Doesnt include other hotel services


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2. Rule-of-thumb Approach

Average per-room cost for hotel development:

Segment Per-room cost

Budget/Economy $52,800

Midscale w/o $85,600

Midscale with F&B $103,100

Full Service $165,900

Luxury/Resorts $516,300


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3. Hubbart Formula Approach

Bottom-upapproach

Begin with desired profitbased upon expected Return

on Investment (ROI)

Calculate pretax profits, fixed charge, management fees,& operating expenses

Estimate other departmental income

Determine the required rooms department income

Add expenses to get rooms department revenue


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Occupancy PercentageNumber of Rooms OccupiedNumber of Rooms Available

What does rooms occupied include? Rooms sold + comp rooms

What does rooms available include? Use the rooms availability formula

2001= 59.20%


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Occupancy Percentage ExampleNumber of Rooms OccupiedNumber of Rooms Available

Sold 95 rooms with 5 comps

150 room hotel with 25 out of order

95 + 5 = 100 =

150 - 25 = 125

80%


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Daily Occupancy Rates

47.8

62.4

67.7 68.365.3 66.5

70.1

0

10

20

30

40

50

60

70

Sun Mon Tues Weds Thurs Fri Sat


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Average Daily Rate (ADR)

Rooms Revenue

Number of Rooms Sold

Number of Rooms Sold includes comps

2001 = $83.48


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RevPar Example

Actual Rooms Revenue

Number of Available Rooms

$10,000 Rooms Revenue

150 room hotel with 25 out of order

$10,000 $10,000 =

150 - 25 125

$80


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Revenue per Available Room

ExampleOccupancy Percentage x ADR

80% x $100 = $80

RevPAR Limitations:* Does not include Revenue& Costsfrom F&B and other outlet

Is RevPAR higher or lower than ADR ?

When will they be equal?


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RevPAR Index - ExampleHotel RevPAR

Competitive Set RevPAR

Your Hotels RevPAR is $58; Comp Set is $60

$58/$60 = .966 x 100% = 96.6%

Below 100%= Under Performing Hotel

100%= Fair Share

Above 100%= Over Performing Hotel


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RevPAR IndexMissed Revenue Example

If your Hotels RevPAR is $58 and your Comp Sets is

$60, you are losing $2 per room in potential revenue

Calculate your potential lost revenue per month

RevPAR Difference x Number of Rooms x Days in Month

Ex.

Missed Revenue for 150 room hotel in December

$2 x 150 x 31 = $9,300


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Documents

Front Office Management and Budgeting