Budgeting( front- office )
Defination : A budget is the monetary or and quantitative expansion
of business plans and policies to be pursued in the future period of
time. The term budgeting is used for preparing budgets and other
procedures for planning.
According to I.C.W.A London “A Budget is a financial and or
quantitative statement prepared prior to a defined period of time , for
attaining a given objective ‘.
Budget portrays the intensions of Management about future plans … it
indicates sales to be made, the expenses to be incurred, and the profit
or income to be received.
Importance Of Budget
It is difficult to overstate the importance of a meaningful budgeting
process for a hotel. Ultimately the budget represents the
implementation of the Owners and Operators vision for the hotel. It the
means by which the Owners and the operators achieve the qualitative
goals we associate with the brand or style of the hotel and the
quantitative goals of achieving a well-run , efficient and profitable
business. Moreover, it is often used as a means to judge the
performance of the operator.
Classification ……..acccording to time
1. Long-term Budgets
2. Short-term Budgets.
3. Current- Budgets
On the basis of functions
1. Functional or subsidiary Budgets
2. Master Budget
On the basis of flexibility
1. Fixed Budget
2. Flexibility
Budgetary Control
Budgetary control, as the term suggests ,is the financial control
through the proper implementation of budget , which means fixing
responsibilities among the concerned managers for any deviations that
may result between budgeted and actual results. It is a control
technique because it provides a standard for evaluation of actual
performance . Any deviation must be promptly brought to the notice
and corrective actions must be taken on time.
Advantages of budget and budgetary control
1. It estimates uncertainty
2. It is the result of various brains .
3. It is good incentives to workers .
4. It helps in optimum use of resources .
5. It helps in effective co-ordination .
6. It helps in fixing responsibility .
7. It helps in spotlighting the deviations .
8. It helps in optimum use of Men , Material and Money.
9. ,it serves as a beacon light.
Dis-advantages /limitations of Budgeting
1. Budgets are estimates and can never be 100% accurate.
2. A budget is simply a tool to efficient management and can never
be a substitute for it . it needs proper planning, organizing and
control.
3. Budgets cannot guide as to what action should be taken.
4. Budgets may be misused by the bosses to find faults in
employees.
5. The initiative may be hampered if the bosses stick to budget
strictly
Stages of budget
1. Preparation and request
2. Approval
3. Implementation and Execution
4. Audit and Review
Approaches
1. Top Down Approach
2. Bottom up Approach
.
Budgeting
The most important long-term planning function performed by
F>O>M is budgeting front-office operations .The hotels annual
operations budget is a profit plan that addresses all revenue sources
and expense items. Annual budgets are commonly divided into
monthly plans which, in turn ,are divided into weekly ….sometimes
daily plans. These budget plans become standards against which
management can evaluate the actual results of operations.
Forecasting Rooms Revenue
Historical financial information often serves as the foundation on
which front-office managers build rooms revenue forecasts.
Method 1
One method of rooms revenue forecasting involves an analysis of
rooms revenue from past periods rupees and percentage difference
are noted and than the amount of rooms revenue for the budget
year is predicted.
Example …Exhibit ‘A’ shows yearly increases in net rooms revenue
for XYZ hotel. For the year 2010 to 2012 , the amount of rooms
revenue increases from Rs.10,00,000 to Rs 13,31,000 reflecting a
10% yearly increase. if future conditions appear to be similar to
those of the past, the rooms revenue for 2014 would be budgeted at
Rs.14,64,000---a 10 % increase over 2011 amount.
Exhibit A Room Revenue summary for XYZ hotel
Year Room Revenue Increase over Rs. Increased % age
2010 10,00,000
2011 11,00,000 1,00,000 10 %
2012 12,10,000 1,10,000 10 %
2013 13,31,000 1,21,000 10 %
2014 14,64,000………….Budgeted
Method II
Another method or approach to forecasting room revenue bases the
revenue projection on past room sales and average daily room rates.
Exhibit ‘B’ presents rooms revenue statistics for 120 room hotel from
2010 to 2013 . an analysis of these statistics shows that occupancy
percentage increased by 3 % from 2010 to 2011, 1% from 2011 to
2012, and 1 % from 2012 to 2013. Average daily room rates
increased by Rs 10 respectively over the same periods. If future
conditions are assumed to be similar to those of past, a rooms
revenue forecast for the year 2014 may be based on a 1 % increase
in occupancy percentage (to 76 % ) and a increase in the average
daily room rate ( 60 $ ). The following formula can be used to
forecast rooms revenue for the year 2014 for this hotel.
( Rooms Revenue statistic For The Hotel ) Exhibit ‘B’
Year Rooms sold Av. Daily Rate Net room Revenue occup. %age
2011 30,660 150 45,99,000 70 %
2012 31,974 200 63,94,800 73 %
2013 32,412 250 81,03,000 74 %
2013 32,850 260 85,41,000 75 %
Forecasted Room revenue = Rooms available x Occupancy %age
X Average Daily Rate
Rs 89,87,760 = (365x120) x 76 % x 270
Estimating Expenses
Most expenses for front operations are direct expenses in that they
vary in direct proportion to room revenue.
Typical room division expenses are pay roll and related expenses;
guest room laundry ;and related expenses ,guest amenities ,toilet
tissues etc ) hotel merchandising ( in-room guest directory and hotel
brochures ), travel agents commission , reservation expenses and
other expenses .when these costs are totaled and divided by the
number of occupied room, the cost per occupied room is
determined. The cost per occupied room is often expressed in Rs.
And as a %age .Exhibit ‘C’ presents expense category statistics of XYZ
hotel from 2009 to 2012, expressed as percentages of rooms
revenue. Based on this historical information and managements
current objectives for the budget year 2005 ,the percentage of
rooms revenue for each expense category may be projected as
follows ;
Exhibit C
payroll & laundry,linen commission on
year related expenses guest supplies reservation other Exp
2010 16.5% 2.6% 2.3% 4.2%
2011 16.9% 2.8% 2.5% 4.5%
2012 17.2% 3.0% 2.6% 4.5%
2013 17.4% 3.1% 2.7% 4.6%
For the year 2014
*payroll and related expenses =
Forecasted room revenue x Forecasted payroll expenses
Rs. 15,81,845 = 89,87,760 x 17.6 %
Laundry , linen and guest supplies
forecasted room revenue x forecasted expenses
2,87,608 = 89,87,760 x 3.2%
Commission & reservation Expenses =
Forecasted room revenue x forecasted expenses
2,51,657 = 89,87,760 x 2.8%
Other Expenses=
Forecasted room revenue x forecasted expenses
4,22,424 = 89,87,760 x 4.7%
Refining Budget
Departmental budget plans are commonly supported by detailed
information gathered in the budget preparation process and
recorded on worksheets and summery files. These documents
should be saved to provide valuable assistance in the preparation
of future budget plans. Many hotels refine expected results of
operations and revise operations budgets as the progress through
the budget year. Re-forecasting is normally suggested when
actual results start to vary significantly from the operations
budget. Such variances may indicate that conditions have changed
since the budget was first prepared and the budget should be
brought into line.
Rooms Division Budget Reports
Generally the hotels accounting division also prepares monthly
budget reports that compare actual revenue and expense figures
with budgeted amounts. Front- office performance is often
judged according to how favorably .The rooms divisions monthly
income and expense figures compare with budgeted amounts. A
typical budget report format should include both monthly
variance and yearly-to-date variance for all budget items. Exhibit
‘A’ presents a rooms division budget report for XYZ Hotel for the
month of January . This budget report does not yet contain year�to-date figures since January is the first month of the business
year for this particular Hotel.
Sample Monthly Rooms Budget Report
XYZ HOTEL
Budget Report – Rooms Division for January…….
Revenue Actual Budget Variance
Room Sales 1,50,000 1,45,000 +5000
Allowance 500 300 200
Net 1,49,500 1,44,700 5200
Expenses
Salaries & wages
Employee’s benefits
Total payroll and
Related expenses
Other expenses
Commission
Contract cleaning
Laundry
Operating supplies
Reservation expenses
Uniform
Other expenses .
Total expenses
Departmental income = Revenue – Expenses
. favourable Variance Un-favourable Variance
Revenue Actual exceeds budget Budget exceeds actual
Expenses Budget exceeds actual Actual exceeds budgets
The fact that actual results of front-office operations differ from
budgeted amount on a budget report should not be surprising.
Any budgeting process, no matter how sophisticated, is unlikely to
be perfect. Front-office managers should not analyze every
variance. Only significant variance requires management analyses
and action . The Hotel general manager and front-office manager
can determine which variance are significant and need attention.
Defination : A budget is the monetary or and quantitative expansion
of business plans and policies to be pursued in the future period of
time. The term budgeting is used for preparing budgets and other
procedures for planning.
According to I.C.W.A London “A Budget is a financial and or
quantitative statement prepared prior to a defined period of time , for
attaining a given objective ‘.
Budget portrays the intensions of Management about future plans … it
indicates sales to be made, the expenses to be incurred, and the profit
or income to be received.
Importance Of Budget
It is difficult to overstate the importance of a meaningful budgeting
process for a hotel. Ultimately the budget represents the
implementation of the Owners and Operators vision for the hotel. It the
means by which the Owners and the operators achieve the qualitative
goals we associate with the brand or style of the hotel and the
quantitative goals of achieving a well-run , efficient and profitable
business. Moreover, it is often used as a means to judge the
performance of the operator.
Classification ……..acccording to time
1. Long-term Budgets
2. Short-term Budgets.
3. Current- Budgets
On the basis of functions
1. Functional or subsidiary Budgets
2. Master Budget
On the basis of flexibility
1. Fixed Budget
2. Flexibility
Budgetary Control
Budgetary control, as the term suggests ,is the financial control
through the proper implementation of budget , which means fixing
responsibilities among the concerned managers for any deviations that
may result between budgeted and actual results. It is a control
technique because it provides a standard for evaluation of actual
performance . Any deviation must be promptly brought to the notice
and corrective actions must be taken on time.
Advantages of budget and budgetary control
1. It estimates uncertainty
2. It is the result of various brains .
3. It is good incentives to workers .
4. It helps in optimum use of resources .
5. It helps in effective co-ordination .
6. It helps in fixing responsibility .
7. It helps in spotlighting the deviations .
8. It helps in optimum use of Men , Material and Money.
9. ,it serves as a beacon light.
Dis-advantages /limitations of Budgeting
1. Budgets are estimates and can never be 100% accurate.
2. A budget is simply a tool to efficient management and can never
be a substitute for it . it needs proper planning, organizing and
control.
3. Budgets cannot guide as to what action should be taken.
4. Budgets may be misused by the bosses to find faults in
employees.
5. The initiative may be hampered if the bosses stick to budget
strictly
Stages of budget
1. Preparation and request
2. Approval
3. Implementation and Execution
4. Audit and Review
Approaches
1. Top Down Approach
2. Bottom up Approach
.
Budgeting
The most important long-term planning function performed by
F>O>M is budgeting front-office operations .The hotels annual
operations budget is a profit plan that addresses all revenue sources
and expense items. Annual budgets are commonly divided into
monthly plans which, in turn ,are divided into weekly ….sometimes
daily plans. These budget plans become standards against which
management can evaluate the actual results of operations.
Forecasting Rooms Revenue
Historical financial information often serves as the foundation on
which front-office managers build rooms revenue forecasts.
Method 1
One method of rooms revenue forecasting involves an analysis of
rooms revenue from past periods rupees and percentage difference
are noted and than the amount of rooms revenue for the budget
year is predicted.
Example …Exhibit ‘A’ shows yearly increases in net rooms revenue
for XYZ hotel. For the year 2010 to 2012 , the amount of rooms
revenue increases from Rs.10,00,000 to Rs 13,31,000 reflecting a
10% yearly increase. if future conditions appear to be similar to
those of the past, the rooms revenue for 2014 would be budgeted at
Rs.14,64,000---a 10 % increase over 2011 amount.
Exhibit A Room Revenue summary for XYZ hotel
Year Room Revenue Increase over Rs. Increased % age
2010 10,00,000
2011 11,00,000 1,00,000 10 %
2012 12,10,000 1,10,000 10 %
2013 13,31,000 1,21,000 10 %
2014 14,64,000………….Budgeted
Method II
Another method or approach to forecasting room revenue bases the
revenue projection on past room sales and average daily room rates.
Exhibit ‘B’ presents rooms revenue statistics for 120 room hotel from
2010 to 2013 . an analysis of these statistics shows that occupancy
percentage increased by 3 % from 2010 to 2011, 1% from 2011 to
2012, and 1 % from 2012 to 2013. Average daily room rates
increased by Rs 10 respectively over the same periods. If future
conditions are assumed to be similar to those of past, a rooms
revenue forecast for the year 2014 may be based on a 1 % increase
in occupancy percentage (to 76 % ) and a increase in the average
daily room rate ( 60 $ ). The following formula can be used to
forecast rooms revenue for the year 2014 for this hotel.
( Rooms Revenue statistic For The Hotel ) Exhibit ‘B’
Year Rooms sold Av. Daily Rate Net room Revenue occup. %age
2011 30,660 150 45,99,000 70 %
2012 31,974 200 63,94,800 73 %
2013 32,412 250 81,03,000 74 %
2013 32,850 260 85,41,000 75 %
Forecasted Room revenue = Rooms available x Occupancy %age
X Average Daily Rate
Rs 89,87,760 = (365x120) x 76 % x 270
Estimating Expenses
Most expenses for front operations are direct expenses in that they
vary in direct proportion to room revenue.
Typical room division expenses are pay roll and related expenses;
guest room laundry ;and related expenses ,guest amenities ,toilet
tissues etc ) hotel merchandising ( in-room guest directory and hotel
brochures ), travel agents commission , reservation expenses and
other expenses .when these costs are totaled and divided by the
number of occupied room, the cost per occupied room is
determined. The cost per occupied room is often expressed in Rs.
And as a %age .Exhibit ‘C’ presents expense category statistics of XYZ
hotel from 2009 to 2012, expressed as percentages of rooms
revenue. Based on this historical information and managements
current objectives for the budget year 2005 ,the percentage of
rooms revenue for each expense category may be projected as
follows ;
Exhibit C
payroll & laundry,linen commission on
year related expenses guest supplies reservation other Exp
2010 16.5% 2.6% 2.3% 4.2%
2011 16.9% 2.8% 2.5% 4.5%
2012 17.2% 3.0% 2.6% 4.5%
2013 17.4% 3.1% 2.7% 4.6%
For the year 2014
*payroll and related expenses =
Forecasted room revenue x Forecasted payroll expenses
Rs. 15,81,845 = 89,87,760 x 17.6 %
Laundry , linen and guest supplies
forecasted room revenue x forecasted expenses
2,87,608 = 89,87,760 x 3.2%
Commission & reservation Expenses =
Forecasted room revenue x forecasted expenses
2,51,657 = 89,87,760 x 2.8%
Other Expenses=
Forecasted room revenue x forecasted expenses
4,22,424 = 89,87,760 x 4.7%
Refining Budget
Departmental budget plans are commonly supported by detailed
information gathered in the budget preparation process and
recorded on worksheets and summery files. These documents
should be saved to provide valuable assistance in the preparation
of future budget plans. Many hotels refine expected results of
operations and revise operations budgets as the progress through
the budget year. Re-forecasting is normally suggested when
actual results start to vary significantly from the operations
budget. Such variances may indicate that conditions have changed
since the budget was first prepared and the budget should be
brought into line.
Rooms Division Budget Reports
Generally the hotels accounting division also prepares monthly
budget reports that compare actual revenue and expense figures
with budgeted amounts. Front- office performance is often
judged according to how favorably .The rooms divisions monthly
income and expense figures compare with budgeted amounts. A
typical budget report format should include both monthly
variance and yearly-to-date variance for all budget items. Exhibit
‘A’ presents a rooms division budget report for XYZ Hotel for the
month of January . This budget report does not yet contain year�to-date figures since January is the first month of the business
year for this particular Hotel.
Sample Monthly Rooms Budget Report
XYZ HOTEL
Budget Report – Rooms Division for January…….
Revenue Actual Budget Variance
Room Sales 1,50,000 1,45,000 +5000
Allowance 500 300 200
Net 1,49,500 1,44,700 5200
Expenses
Salaries & wages
Employee’s benefits
Total payroll and
Related expenses
Other expenses
Commission
Contract cleaning
Laundry
Operating supplies
Reservation expenses
Uniform
Other expenses .
Total expenses
Departmental income = Revenue – Expenses
. favourable Variance Un-favourable Variance
Revenue Actual exceeds budget Budget exceeds actual
Expenses Budget exceeds actual Actual exceeds budgets
The fact that actual results of front-office operations differ from
budgeted amount on a budget report should not be surprising.
Any budgeting process, no matter how sophisticated, is unlikely to
be perfect. Front-office managers should not analyze every
variance. Only significant variance requires management analyses
and action . The Hotel general manager and front-office manager
can determine which variance are significant and need attention.
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